KEY POINTS:
Continued strength in the New Zealand dollar and mortgage rate rises over the past month have combined to reduce likelihood of another hike in the official cash rate later this month, economists say.
The Reserve Bank raised its official cash rate by 25 basis points to 7.5 per
cent last month to dampen inflationary hotspots arising from a buoyant real estate market and increased consumer spending.
The bank warned that further tightening may be required.
Most trading bank economists don't see that happening at the April 26 rate review.
Recent economic surveys have provided a mixed picture as to where the economy is at.
The Westpac-McDermott Miller employee confidence index rose to 131 in the first quarter, its highest reading since the March 2005 quarter and up from 130.8 in the previous quarter. But the survey is at odds with others over the past month, which have shown a dip in business and consumer confidence.
The strong performance of the New Zealand dollar, which hit a 22-month high of US72c early last week, has done some of the work for the Reserve Bank by reducing the cost of imports and thereby acting against inflationary pressures.
The other key factor is significant increases in mortgage interest rates in recent weeks, which may take some of the sting out of the real estate market. Major banks have little to offer under 8.6 per cent, compared with the cheapest mortgage rate of 7.47 per cent for a two-year fixed-rate mortgage at the start of last year.
Westpac economist Donna Purdue says there has not been such a big jump in retail mortgage interest rates since 2003 "and that's definitely going to have an impact on the housing market".
If there is no slowdown in the housing market by June, and if the March quarter consumers price index comes in higher than expected, then the probability of a June rate hike will become higher, she says.
ASB Bank chief economist Nick Tuffley agrees that mortgage rate rises and the strong dollar have given the central bank room to breathe.
"At least for April, the Reserve Bank can sit back and wait and have a hard look at the data to see how much enduring strength we have in housing and in retail," he says.
"We are still not left with a strong picture of whether this pickup in the housing market is going to endure for a number of months from here or whether it is going to start slowing soon."
UBS New Zealand economist Robin Clements is among a handful of economists who do expect a rate hike this month.
He says that if it was worth hiking once, it is worth hiking it twice. That would at least reinforce the message and make it worth the effort in the first place, he says. "Basically the economy is still resilient and there has not been a convincing change in direction," Clements says.
