By BRIAN FALLOW
WELLINGTON - Most economists expect Reserve Bank Governor Don Brash to raise interest rates half a percentage point on Wednesday.
If he does, he will have pushed up rates 2 percentage points since he started "easing back on the accelerator" six months ago.
Beyond this rise to 6.5 per cent
in the official cash rate, analysts expect Dr Brash to proceed more gingerly. Recent data suggests growth has flattened from the rip-roaring pace of the second half of last year.
Retail sales, adjusted for inflation and seasonal effects, grew a scant 0.2 per cent in the March quarter, following real growth of nearly 4 per cent over the second half of last year.
One pointer to the consumer's willingness to borrow and spend - credit check inquiries to Baycorp - slowed over the March quarter but they are still moving upward.
Growth in household debt has been slowing since the start of the year, suggesting people may be feeling the pinch of higher interest rates. Wage data suggests real wage growth over the March year was about zero.
The bank's last monetary policy statement in March took a softer line on the inflation outlook than many expected, but thatdid not last long.
The bank seems to have been spooked by the much-stronger-than-expected gdp data for the December 1999 quarter.It raised rates another 25 basis points on its intra-quarter review in April.
Surveyed capacity utilisation remains close to its peak during the last cycle, while costs and price-raising intentions continue to rise.
Tightness in the labour market is expected to show up in accelerating wage growth later this year.
Meanwhile, ANZ Bank economist David Drage said the New Zealand dollar's weakness - it is languishing around 14-year lows against the US dollar - was likely to reinforce the Reserve Bank's inflation fears.
The Federal Reserve is also aggressively raising interest rates, with another move expected on Wednesday, meaning little support for the kiwi from higher interest rates.
Other things being equal, if a weak dollar is stimulating the export and import-competing sectors of the economy, interest rates have more work to do if the Reserve Bank wants to rein back overall growth in demand.
