Prospect of interest rates rise prompts fears for New Zealand economic recovery

Lobby groups across the political spectrum are calling on the Reserve Bank of New Zealand (RBNZ) to refrain from raising interest rates at the next review on Thursday amid fears that businesses and households will suffer. Speculation that the RBNZ would lift the official cash rate ( OCR) from its historic low of 2.5 percent grew Wednesday as a leading independent think-tank said its "shadow" reserve bank board was recommending a rise of 25 basis points. The New Zealand Institute of Economic Research (NZIER) issued a statement saying the shadow board of economists and business leaders felt the time was right for a rise as consumers were gearing up spending and inflation pressure was building. The RBNZ had been widely expected to raise the OCR in March as the economy built up steam, but the latest consumer price index released last week, showing a 1.6-percent rise last year, prompted many commentators to speculate the rise might be brought forward. The conservative Federated Farmers industry group said Wednesday it would like to see the RBNZ hold an interest rate rise until the next six-weekly review in March "at the very least" as a rise could boost the already strong New Zealand dollar and hit exports. "There are some worrying undercurrents internationally and a surging dollar will directly impact farmgate returns," Federated Farmers President Bruce Wills said in a statement. "There's a feeling of dj vu given the way emerging markets in 1997 tipped New Zealand into recession, bookended by some suboptimal growing conditions. If anything, our exports today are far more exposed to emerging markets so what happens in them matters to our economy." Meanwhile, the Council of Trade Unions (CTU) Wednesday urged the RBNZ to resist strong pressure from the commercial banks to raise interest rates, saying a rise could choke economic growth and exports and encourage banks to borrow from abroad to fund credit growth. "Unemployment is still high despite signs of growth in the economy. Wages need to rise in real terms after years of stagnation. Businesses need to invest in areas other than property to create jobs," CTU economist Bill Rosenberg said in a statement. RBNZ governor Graeme Wheeler has indicated the bank would raise the OCR, which has been at 2.5 percent since March 2011, this year in order to take the air out of housing bubbles in New Zealand's two largest cities of Auckland and Christchurch. The RBNZ has a target range for inflation of 1 percent to 3 percent.