New Zealand Growth Spurs Economists to See RBNZ Rate Increase in December

New Zealand’s central bank will raise interest rates this year, most economists in a Bloomberg News survey said, after a report showed manufacturing and farming led the fastest quarterly growth in more than a year.

ASB Bank Ltd. economist Jane Turner changed her forecast for a rate increase to December from January after Statistics New Zealand said gross domestic product rose 0.8 percent in the three months ended March 31. Analysts at Goldman Sachs & Partners New Zealand Ltd. and TD Securities Inc. are reviewing their forecasts for no change in rates until 2012.

New Zealand’s dollar reached the highest since currency controls ended in 1985 after the GDP report added to signs the central bank may raise its benchmark rate from a record-low 2.5 percent in the fourth quarter. Reserve Bank Governor Alan Bollard last month said the pace and timing of increases in borrowing costs will be guided by the speed of the economy’s recovery after a Feb. 22 earthquake.

“There’s no reason to have the cash rate at 2.5 percent,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney who accurately forecast the quarterly GDP increase. He predicts a rate rise in October, having previously forecast an increase in December.

Growth was more than twice the central bank’s forecast for an expansion of 0.3 percent, which matched the median estimate of 17 economists surveyed by Bloomberg News.

Rate Forecasts

After the GDP report was released, six of 11 economists in a Bloomberg survey predicted a quarter-point rate increase at the Reserve Bank of New Zealand’s meeting in December.

New Zealand’s dollar reached as high as 85.07 U.S. cents, from 83.74 cents late yesterday in New York, before trading at 84.19 cents at 4:12 p.m. in Wellington.

Bollard cut the official cash rate a half a percentage point in March to shore up confidence after the southern city of Christchurch suffered the nation’s deadliest earthquake in 80 years. The temblor wrecked homes, killed more than 180 people and shut the central business district.

Interest-rate swaps show a 64 percent probability the Reserve Bank of New Zealand will raise the cash rate a quarter point at the December meeting, up from 36 percent late yesterday, according to prices from Westpac Banking Corp. (WBC)

“Risks are certainly skewed toward the RBNZ resuming tightening policy before the end of the year,” said Philip Borkin, an economist at Goldman Sachs & Partners New Zealand, in Auckland. His forecast of a rate rise in January is under review, he said.

Tourism Boost

New Zealand’s economy is expected to accelerate amid reconstruction of Christchurch and spending by an estimated 85,000 visitors as the nation hosts the Rugby World Cup in September and October.

“The rebuild, along with near record commodity export prices, interest rates at 40-year lows, improving business confidence, lower household debt and the upcoming Rugby World Cup, give us confidence in the outlook for New Zealand’s economy,” Finance Minister Bill English said in an e-mailed statement today.

Prime Minister John Key faces a general election in November.

Business confidence rebounded in the second quarter from a two-year low in the first three months of the year, the New Zealand Institute of Economic Research said last week, citing a survey of 782 companies. House prices rose 1.3 percent in June, the Real Estate Institute said today.

‘Gathering Clouds’

Still, there are “gathering clouds” in the global economy, and there’s a risk the Rugby World Cup and quake reconstruction may be weaker or emerge more slowly than estimated, said Robin Clements, chief New Zealand economist at UBS AG in Christchurch.

Consumer confidence fell this month after reaching a five- month high in June, according to a Roy Morgan-ANZ National Bank Ltd. (NBL) survey published today. Manufacturing expanded at a slower pace in June, according to an index today calculated by Bank of New Zealand Ltd. and Business New Zealand.

“Whether the New Zealand economy has entered a sustainable, robust recovery remains to be seen,” Clements said. “The RBNZ can afford to be patient.”

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

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.