Reserve Bank Rate Hike Expected Despite Weak Domestic Demand

Economists expect the Reserve Bank to increase the official cash rate this week, but not everyone agrees it's the right time. Jarrod Kerr, chief economist at Kiwibank, thinks a hike from 2.5 percent to 2.75 percent would be premature.

Kerr says that while exporters have benefited from strong commodity prices and demand from overseas trading partners, this hasn't translated into domestic demand or wage growth for regular New Zealanders. Households are facing price increases in food, electricity, rates, and insurance, but incomes aren't keeping up with the cost of essentials.

BNZ chief economist Mike Jones takes a slightly different view, saying that the Reserve Bank is reducing monetary stimulus rather than actively putting the brakes on growth. He notes that even if the cash rate is increased to 2.75 percent, it would still be below neutral and stimulatory.