KEY POINTS:
Reserve Bank Governor Alan Bollard softened the blow of another interest rate increase yesterday by explicitly, if conditionally, adding that he thought that would be enough.
The increase in the official cash rate to 8.25 per cent is the fourth since March.
"New Zealanders have been showing early signs of moderating their borrowing," Bollard said. "Provided they keep this up, and the pressure on resources continues to ease, we think the four successive OCR increases we have delivered will be sufficient to contain inflation."
Deutsche Bank chief economist Darren Gibbs said the Reserve Bank might have wanted to offer something positive to the politicians to take a bit of the heat off itself, as well as sending a signal to the foreign exchange market.
"We suspect the Reserve Bank sees this silver lining around the rate hike cloud as serving the purpose of both mitigating criticism of today's move, both from the business sector and politicians, and perhaps undermining the New Zealand dollar."
The dollar dropped the best part of a cent before rebounding.
But Bank of New Zealand chief economist Tony Alexander said we had heard these "that's probably it" comments from Bollard in October 2004 and January 2005.
In both cases he had subsequently had to start raising the OCR again, by 75 and now 100 basis points respectively.
"If you were a betting man you would probably say if they were wrong on two occasions there's still a chance they will be wrong on three," Alexander said.
Neither the money markets nor economists have entirely discounted the possibility of another increase, though the odds are put at about 20 per cent.
But most do not see the official cash rate coming down until late next year.
"We are not as confident as they are about resource pressure easing, particularly in the labour market," Alexander said. "We think there is a chance they will be easing late next year."
ASB Bank economist Daniel Wills does not expect to see an OCR cut until December next year.
"This increase is an insurance move," he said, "given the fact that oil prices are high, against the backdrop of resource pressure. We are not expecting those to unwind any time soon."
Bollard would have been mindful of the need not to add further momentum to the New Zealand dollar, Wills said.
"The statement doesn't add any pressure to the dollar, but nor does it really suggest it is going to fall dramatically any time soon."
The Reserve Bank's statement made no mention of its longstanding bugbear, the housing market.
"It is putting weight on anecdotes that the housing market and borrowing are starting to moderate," ANZ National Bank chief economist Cameron Bagrie said.
"Though the data to date is inconclusive, as a bank we can attest to this when we look at our own books."
Bagrie saw the explicit move to a neutral stance as a bid to remove expectations of any further interest rate increase and take pressure off the exchange rate.
"For the currency speculators it's not just the absolute level of interest rates that matters. It's expectations over the next three to five months. So by taking that out you are taking away a bit of their enthusiasm."
He said there was an increased chance that the RBA would raise interest rates soon, so there might be a fair bit of switching from kiwi to aussie dollars.
Up it goes
* Bollard has raised the official cash rate from 8 per cent to 8.25 per cent.
* It's the fourth rate increase this year and the 13th this cycle.
* But he says it will be the last - provided borrowing cools and some slack develops in the economy.
