Easing pressures in the housing market will not deter the
Reserve Bank from hiking the interest-driving official cash
rate (OCR) tomorrow, as inflationary pressures and stronger
gross domestic product data take precedence for the bank's
However, the ongoing strength of the New Zealand dollar,
which would be underpinned further with higher interest
rates, appears set to hit parity with the flagging Australian
Most economists support the Reserve Bank hiking the OCR,
which has been sitting at an all-time low of 2.5% since July
2010, and there are expectations of several more hikes this
Westpac senior economist Dominick Stephens said the housing
market was continuing to slow in response to the Reserve
Bank's restrictions on loan to value (LVR) mortgage lending.
''It is now fairly clear that the market slowdown has been
more acute than the Reserve Bank anticipated,'' Mr Stephens
Following Real Estate Institute of New Zealand data yesterday
showing a 7.6% decline in sales from February a year ago, Mr
Stephens believed the total decline in sales since the
mortgage restrictions were introduced last October now
totalled 13.4%, ''as sure an indication of a slower market as
Mr Stephens said other aspects of the economy had been
stronger than the Reserve Bank anticipated, with inflation
heading up, GDP stronger than anticipated, business
confidence at a 20-year high and the terms of trade at a
''The Reserve Bank has as much reason as ever to persist with
lifting the OCR this year, despite the slowing housing
market. To suppress inflation pressures from bubbling up, the
Reserve Bank will have to lift interest rates,'' he said in a
ASB chief economist Nick Tuffley said a recent ''kiwi dollar
barometer'' survey had almost 70% of the businesses expecting
the kiwi to reach parity with its Australian counterpart
during the next 12 months.
During the past year, the cross rate had ''surged'' from A80c
to A94c, with a greater proportion of the smaller businesses
surveyed reporting damage to their operating margins,
relative to the larger businesses.
''Large businesses are both more likely to hedge and tend to
hedge against almost all their foreign exchange exposure,''
Mr Tuffley said.
Small businesses should themselves consider hedging
contracts, he added.
New Zealand Institute of Economic Research's ''shadow board''
of economists said the Reserve Bank should hike the OCR by 25
basis points tomorrow, to head off inflation pressures and
moderate housing demand in Auckland.
NZIER senior economist Dr Kirdan Lees said the economy was
''moving along nicely'', the Canterbury rebuild was
proceeding at pace and all economic indicators pointed to a
growing economy, which would push prices higher.
''Interest-rate hikes will pack a punch. Most outstanding
mortgage lending is short-term, so hikes will be passed
straight through to borrowers ... tempering household
consumption and business investment,'' Dr Lees said.
Mr Stephens noted the higher interest rates would become ''a
very serious headwind for the housing market, perhaps even
causing a period of declining house prices later in the