KEY POINTS:
Homeowners face a second interest rate hike in six weeks after figures yesterday showed inflation remains too high for the Reserve Bank.
And the chance the official cash rate will next week rise to 7.75 per cent - among the highest in the developed world - pushed the kiwi dollar to a high of US74.93c.
Reserve Bank Governor Alan Bollard may lift rates again next Thursday amid signs that inflation is picking up and that interest rates so far have not sufficiently cooled the economy, economists say.
Statistics New Zealand said the consumer price index rose 0.5 per cent in the first three months of the year and 2.5 per cent over the past 12 months.
But of particular concern to Dr Bollard would be that non-tradeables' inflation - inflation in domestic goods and services rather than imports - had its strongest rise in three years, showing that the bounce-back in the economy late last year is starting to feed through to inflation.
A second rate rise next week would see the cost of taking out a $100,000, two-year fixed mortgage rise by nearly $40 per month if banks passed on the full rise.
Before Dr Bollard lifted the official cash rate last month, two-year interest rates were 8.5 per cent at most banks, meaning a $100,000, 25-year loan would cost $805 a month to pay off.
Two-year rates are now at 8.9 per cent and if banks passed on a full 25 basis point rise, they would rise to 9.15 per cent and the same loan would cost $849 per month.
Demand from foreign investors for the high interest rates on offer in New Zealand over the past few years has seen the currency almost double from its low of US38.95c in October 2000.
The latest rise in the kiwi will further erode the competitiveness of some exporters but there is little relief in sight as the United States dollar is out of favour with global investors.
"The trend in kiwi does look pretty healthy for now," said Deutsche Bank currency strategist John Horner.
Rate check
* Two-year fixed home loan for $100,000:
Beginning of March:
* Interest rate of 8.5 per cent.
* Monthly repayment of $805.
If rates go up next week:
* Interest rate of 9.15 per cent possible.
* Monthly repayment of $849.
