By Roger J Kerr Watch out for money-market interest rate forward pricing (and bank economist predictions) to progressively move back to a June/July commencement of OCR increases, as both RBNZ viewpoint and economic data fails to deliver to the current April timing. Housing market and employment data does not support any significant shift upwards in consumer spending and the supposed related inflation risks. The only thing that is going to bring forward the RBNZ timing will be a rapid decline in the NZD/USD exchange rate.

We still hold to our long-standing view that OCR increases will not commence until August/September. The RBNZ are quite correct in hinting that they will need to see real hard evidence of the economy recovering to a higher growth path before removing the monetary stimulus. They will not have the GDP growth over the first half of 2010 until late September, so it is very difficult to see them lifting in April as the economists gurus keep on insisting will happen. It is also clear that when the RBNZ do start the lifting of official interest rates they will move in 0.50% chunks. From the current 2.50% the OCR is likely to increase quirt rapidly later this year to 4.50%. However that is only official short-term rates catching up to were market retail deposit and terms swaps are already priced at. So apart from floating mortgage rates increasing somewhat, there will not be much impact on borrowers and the economy. Until June/July time our interest rates will continue across the page in very tight trading bands, unless something untoward happens globally. The RBNZ and a few banks still maintain hugely overly-optimistic GDP growth forecasts for this year at 2.5% to 4.00%. The RBNZ forecast is based on massive stock rebuilding and a 10% increase in business investment this year. Neither is going to happen, forcing the RBNZ econometricians to interview business firms as a more reliable lead indicator on the economy, rather than their economic models. * Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com