NZ dollar jumps on bank's outlook

Wholesale interest rates rose and the dollar jumped when the Reserve Bank revealed a more hawkish view than the markets had expected.

"We believe they have slightly over-reacted," Governor Alan Bollard said.

The exchange rate had already hurt parts of the export and import-competing sectors, he said.

But his comments yesterday gave no grounds to believe the bank was contemplating intervention in the foreign exchange market.

"We do not believe it can fundamentally move a trend."

The bank should not have been surprised by the market reaction, economists said.

Its interest rate projections are 50 basis points higher by the end of next year than the market had priced in.

And before yesterday's statement, the market had only put about a 70 per cent chance that official cash rate hikes would start in December.

The New Zealand dollar rose as high as US82.42c in early afternoon trading . By 5pm it was at US81.96c, compared to US81.78c at 5pm on Wednesday.