Economic news

NZ Central Bank seen Holding Rates but Not for too Long

* RBNZ to hold rates at 0.25%- poll

* RBNZ to acknowledge stronger starting point- ANZ

* Markets pricing rate hike in November

WELLINGTON, July 12 (Reuters) - New Zealand’s central bank will leave monetary policy unchanged this week but could start to raise rates later this year, according to a Reuters poll, following recent data that showed rising inflationary pressures and a tightening labour market.

All economists polled by Reuters expect the Reserve Bank of New Zealand (RBNZ) to hold the official cash rate (OCR) on Wednesday at a record low of 0.25%, where it has been since a pandemic-driven cut in March last year.

But at least a quarter of them now expect a rate hike later this year, a change in sentiment sparked a business survey last week that indicated a sharp improvement in outlook while also flagging rising capacity pressures and inflation.

ANZ Bank, which moved forward its forecast for a rate hike by a year to November, said RBNZ is likely to acknowledge the stronger economic conditions, and thereby set the scene for kicking off a cycle of rate rises this year.

The market is already pricing in almost 90% odds of a hike by November, and “one and a half” hikes by February, ANZ Chief Economist Sharon Zollner said in a note.

“We have been emphasising for some time that the risks were becoming strongly skewed towards lift-off this year. Now that the market is there, it’s more likely,” Zollner said.

The Reserve Bank of New Zealand (RBNZ) held interest rates in May but hinted at a hike as early as September 2022, as the economy rebounded faster than expected.

However, Governor Adrian Orr has rejected the market push for an early tightening and emphasised the need for patience.

ASB Bank said RBNZ may drop a reference to “considerable time and patience” from its statement this week, which would be a key change.

“Yet, the RBNZ is probably keen to avoid saying anything that pushes wholesale interest rates any higher. It’s a delicate balancing act worthy of a good stunt double,” said ASB Chief Economist Nick Tuffley.

The Reserve Bank of Australia (RBA) held rates earlier this month and insisted that a step-down in bond purchases did not represent a withdrawal of support, rejecting views it had embarked on a policy tightening path.

(Reporting by Praveen Menon; editing by Richard Pullin)

Source: Reuters

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