‘Nowhere to hide’ from rate rise

OFFICIAL interest rate rises could start as soon as next week and would bite quickly for borrowers, a leading bank economist says.

‘‘And there is nowhere to hide,’’ ANZ Bank chief economist Cameron Bagrie says, with three rate rises likely in the first half of the year and expected to be felt widely.

The Reserve Bank should start to lift official interest rates this month, after higher than expected inflation figures out yesterday, according to ANZ Bank.

Inflation hit 1.6 per cent in the 2013 year, with an unexpected surprise 0.1 per cent lift in the December quarter, when economists had forecast prices to drop slightly. It was the highest annual increase in inflation since early 2012.

But other economists expect the Reserve Bank to sit tight next week in its one-page statement and make the first move in March when it issues a detailed Monetary Policy Statement. And a business group says there is no reason to start raising interest rates yet.

The Employers and Manufacturers Association said if the bank economists had their way the ‘‘economic recovery will stall’’.

‘‘There is no justification for bank economists calling for an increase in the official cash rate,’’ EMA chief executive Kim Campbell said.

‘‘The economic don’t justify it’’.

Higher interest rates would be a wage rise for banks keen on making up lost ground from eroded banking spreads between borrowing and lending rates he said.

Yesterday’s surprise increase in inflation saw the New Zealand dollar jump up more than half a US cent, to US83.2 cents and A94.4c. Two year ‘‘swap’’ wholesale interest rates rose 5 basis points on the news.

Statistics NZ figures showed higher international air fares and rising housing and dairy prices, including milk and cheese, were partly countered by lower vegetable prices and cheaper petrol.

The strong New Zealand dollar has continued to hold down the price of imported household goods, but was less of a dampening effect on inflation than expected.

But ANZ Bank said it was ‘‘now calling a January OCR hike’’ because of the higher than expected

fundamentals inflation figures and strong economic growth figures announced just before Christmas.

‘‘The official cash rate at 2.5 per cent is on borrowed time, it is just a moot point whether you wait another six weeks, or step up next week and get the job done,’’ Bagrie said.

The Reserve Bank was expected to lift interest rates three times in quick succession in the first half of the year, Bagrie said, before a pause ‘‘for a cup of tea’’ because the strength of the economy may start to become questionable after a quick set of rate rises.

And with a high proportion of borrowers on floating or shortterm fixed rates of less than a year, the three 25 basis point rate rises will bite quickly.

‘‘A big proportion of people will notice that from day one,’’ he said. The average mortgage is for a term of seven months, so there was a big concentration of people on six months terms or below.

‘‘It will bite very quickly and there is nowhere to hide,’’ Bagrie said.

Westpac Bank economists said the inflation figures were a ‘‘big data surprise’’ and raised a legitimate question of whether the Reserve Bank might raise interest rates at next Thursday’s OCR review.

‘‘The case for higher interest rates now looks well and truly sealed,’’ Westpac senior economist Michael Gordon said, with inflation accelerating, though still below the mid-point of the Reserve Bank’s target.

But Westpac said it continued to favour a March rate rise rather than a move next week.

The best argument for waiting till March was around communication, with Reserve Bank governor Graeme Wheeler possibly preferring to wait and use the full Monetary Policy Statement to explain the reasons for taking such a significant step, Gordon said.