Source: Radio New Zealand
RNZ
- Kiwibank says rate hikes would be “reckless”
- ANZ forecasts three rate hikes this year
- The RBNZ has said there won’t be a knee-jerk reaction to Middle East conflict
The economist community appears to be split over the Reserve Bank’s interest rate path, with one bank saying “reckless” rate hikes are unwarranted.
Kiwibank economists were blunt in their view, warning another RBNZ-induced recession could be on the cards if rates were to be lifted.
It comes as other banks bring forward rate hike expectations amid fears the Middle East conflict and rising fuel prices could stoke inflation.
The most recent OCR call change was by ANZ, which has forecast three rate hikes this year, starting from July.
In a note, Kiwibank economists Jarrod Kerr and Alexandra Turcu said the RBNZ’s best option was to watch and wait before deciding its move.
“Households and businesses who’ve already seen their costs rise don’t need a rise in interest rates to dampen their demand – because this is not a demand story, this is not Covid,” they said.
“Raising interest rates risks a repeat of past mistakes, potentially inducing a recession. It could be reckless.”
ASB and Westpac NZ also believed rate hikes could occur from September, although it could happen earlier.
“I am open to the idea that it could occur as early as May depending on how things evolve,” Westpac chief economist Kelly Eckhold said.
Kiwibank said there was uncertainty around the duration of the Middle East conflict, and it was causing households and businesses to bunker down.
“Confidence has been hit, and so to have investment intentions and hiring,” Kerr and Turcu said.
“Raising interest rates is tone deaf, and potentially reckless. Because both businesses and households are struggling with increased costs, not surging demand.”
Kiwibank expected to see a contraction in economy activity in the current quarter, although noted the data was still months away.
“Q2 CPI (inflation) isn’t out until July, after the RBNZ’s decision, and to know if inflation sticks around we really need to see Q3 data at the very least,” they said.
“In our view, the RBNZ’s best course of action is to watch, wait, and weigh up the facts once they have the information in front of them.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
