N.Z. Will Begin Raising Rates in July, JPMorgan Says

By Tracy Withers

Oct. 12 (Bloomberg) -- New Zealand’s central bank will wait until July before starting an “aggressive” series of increases in the benchmark interest rate, said JPMorgan Chase & Co.

Governor Alan Bollard is likely to hold the official cash rate at 2.5 percent until July, then raise it to 4 percent by the end of 2010, Sydney-based economist Helen Kevans said in an e-mailed report. She expects a 50 basis point increases in July and September to start the tightening cycle. A basis point is 0.01 percentage points.

“The Reserve Bank will avoid stunting recovery with a premature tightening,” Kevans said. “Delaying the first rate hike will mean the bank will have to be more aggressive when the tightening cycle begins.”

Bollard on Sept. 10 said he doesn’t plan to raise borrowing costs until the “latter part” of 2010 because the recovering economy needs further stimulus. Since that statement, reports have shown business confidence reached a 10-year high in September and third-quarter consumer confidence was the highest since 2005, bolstering domestic demand, Kevans said.

“The Reserve Bank will shift to a neutral policy stance early in 2010, paving the way for the first hike to be delivered in July,” she said. “By then, the Reserve Bank should be confident that the withdrawal of policy stimulus will not stunt the recovery.”

Seven of 11 economists surveyed by Bloomberg News last week expect Bollard will raise the cash rate by at least a quarter point before June 30. Traders expect the rate will be 4 percent by October next year, according to an index calculated by Credit Suisse based on swaps trading.

JPMorgan said New Zealand’s economy will grow 2.8 percent next year, faster than the 2.3 percent it previously forecast.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.