Reserve Bank Governor Alan Bollard has fired and reloaded, accompanying his well-flagged increase in the official cash rate to 7 per cent yesterday with a warning of more to come.
But economists are split down the middle about whether he will raise the OCR again on December 8.
"The prospect of further tightening may only be ruled out once a noticeable moderation in housing and consumer spending is observed," Bollard said.
Deutsche Bank economist Darren Gibbs said the word "observed" was telling.
"He is done with forecasting slowdowns. He wants to see them now.
"And I just don't think we will see the evidence the bank requires in the next six weeks."
Gibbs said yesterday's move reduced the chances of a hard landing - growth slowing to below 1 per cent - rather than increasing it.
"Because the bank is right when it says that if the current imbalances continue, the adjustment, when it comes, will be even tougher."
Bank of New Zealand economist Stephen Toplis agrees.
"It all comes down to the same old problem of how to get rid of excess domestic demand. The medicine required now may be quite severe."
Toplis rates the chances of another rate hike in December at 70 per cent.
Eight rate hikes since the start of last year had done all sorts of collateral damage - to the export sector via the exchange rate and to businesses generally through higher borrowing costs - while leaving the target, free-spending consumers, relatively unscathed.
"But he can't put his head under the pillow and hope it goes away. It tells you that the risk to interest rates is all on the upside," Toplis said.
Bollard said he expected "a significantly lower exchange rate".
But HSBC chief economist John Edwards said he would not get a lower kiwi so long as he left open the prospect of further interest rate increases.
Having one of the world's highest cash rates would continue to support the New Zealand dollar at a level exporters found discouraging, Edwards said.
"We think and hope this is the last tightening but another can't be ruled out."
Westpac chief economist Brendan O'Donovan said consumer spending had been coming off but, given the resilience of the housing market, it was unlikely Bollard would take his finger off the trigger.
"We expect the Reserve Bank to keep the OCR unchanged but the probability of this is only marginally higher than that of another 25 basis point hike."
ANZ National Bank chief economist John McDermott believes the hurdle for another rate hike has been raised and will prove too high.
The bank had explicitly referred to the real economy in expressing what its decision would be conditional on, implying that inflation was not the sole thing determining its reaction.
But ASB Bank's Kate Skinner sees a "very strong likelihood" that further tightening will be required. ASB's own lending figures implied the housing market was still very buoyant, she said.
First NZ Capital economist Jason Wong said after a year of below-trend growth and the prospect of another year or two of the same, and with inflation in his view peaking, the bank should not be tightening further.
Despite subdued retail spending, he doubts the housing market will show the signs of weakening that Bollard is looking for.
"We reluctantly pencil in another hike into our forecasts."
Bollard warns of further rate rise
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