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Commentators say Reserve Bank Governor Alan Bollard's raising of the Official Cash Rate this morning may finally be enough to contain inflationary pressures.
Announcing the .25 per cent increase to 8.25 per cent, Dr Bollard said the New Zealand economy was running strongly and big increases in international commodity prices were being recorded, reflecting solid world demand for local products.
"This is very good news for New Zealand," he said.
"Given this positive situation, some of the negative commentary circulating about the economy is unwarranted."
ANZ economist Khoon Goh said the tone of today's statement was less hawkish, basically neutral.
"So it's been read by the market as dovish and the Reserve Bank believes that the fourth interest rate hike in a row should be enough to pretty much get the job done in containing inflation pressures."
First NZ Capital economist Jason Wong said the comments indicated the four rate rises should be sufficient in terms of the inflation outlook.
"I guess what he's trying to do is prevent the currency from rocketing ahead and the market pricing-in further rate rises; he's quite happy to pause for now."
All of which may be seen as good news by homeowners and exporters, who have been suffering the effects of increased mortgage rates and a high kiwi dollar.
Previous increases to the Official Cash Rate have seen lenders quickly adjust their floating mortgage rates and while it is expected the major banks' floating rates could now hit 10.55 per cent, the prospect of longer-term stabilisation will be welcomed by mortgage holders.
ASB chief economist Nick Tuffley said it looked like mortgage holders could now be out of the woods.
"But I'd never say never," he said.
Mr Tuffley said after this morning's rise, the Reserve Bank was likely to keep the rate on hold.
"The lending and housing market is starting to slow and if that continues then it will sit and do nothing," he said.
Dr Bollard again warned foreign investors that the New Zealand dollar was not sustainable in the medium term.
"The higher OCR now gives strong incentives to New Zealanders to save. New Zealanders have been showing early signs of moderating their borrowing.
"Provided they keep this up, and the pressure on resources continues to ease, we think the four successive OCR increases we have delivered will be sufficient to contain inflation," he said.
Mr Tuffley said Fonterra's dairy pay-out announcement yesterday had been noted by the Reserve Bank.
"The pay-out looks conservative and there's a good chance it could be revised up but that's been taken into account by the Reserve Bank."
The New Zealand dollar was at US80.36c immediately before the OCR announcement but dropped as low as US79.90c before bouncing back to US80.17c by 11.20am.
Official Cash Rate changes for the last 12 months
July 26: OCR increased by .25 per cent to a total of 8.25 per cent.
June 7: OCR increased .25 per cent to a total of 8 per cent.
April 26: OCR increased .25 per cent to a total of 7.75 per cent.
March 8: OCR increased .25 per cent to a total of 7.5 per cent.
January 25: there was no change.
December 7: there was no change.
October 26: there was no change.
September 14: there was no change.
July 27: there was no change.
- NZ HERALD STAFF, NZPA
