Photo: RNZ
The Reserve Bank will continue to "talk tough on inflation" as it anounces latest Official Cash Rate rise, an economist says.
The OCR is expected to be raised by another 25 basis points to 5 percent, although economists suggest the end to interest rate hikes may be in sight.
A decision by the Reserve Bank on Wednesday afternoon to lift the rate to 5 percent, a level last seen in December 2008, is regarded as a given by financial markets.
On Tuesday, the Reserve Bank of Australia left its cash rate unchanged, at 3.6 percent, to assess the impact of the 10 rate rises so far, but warned it would resume if needs be.
Economists say the bank is likely to try to deter any expectation of rate cuts, which are not expected before the middle of next year.
ASB chief economist Nick Tuffley thinks there will be another increase in May, but said when the RBNZ put rises on hold, households and businesses should not expect any softening of policy.
"When the Reserve Bank is at the end, whether it's in April or May, it is just making it clear that rates need to remain restricted for quite some time, otherwise you have markets rushing to price in cuts quite quickly and that starts to pull interest rates down.
"It's a challenging balancing act, particularly if you do move to an on-hold stance, you have to talk tough at the same time."
Tuffley expected the RBNZ to disregard any short term impact from the floods and cyclone, as well as the recent global banking wobbles.
NZ Institute for Economic Research (NZIER) principal economist Christina Leung said there were signs of slowing in the economy with the 0.6 percent contraction in the economy in the December quarter, and the latest NZIER survey of business opinion showed there were signs of easing in demand.
"Things are moving in the right direction when it comes to that dampening in demand that the Reserve Bank had been seeking with its interest rate increases in order to take some of that heat out of the New Zealand economy to return annual CPI inflation back towards its 1 to 3 percent target band."
"Things are moving in the right direction when it comes to that dampening in demand." - Economist Christina Leung
Australia had lower rates than New Zealand because the effect of rises flowed more quickly into its economy, she said.
With 65 percent of mortgages in Australia on floating rates, compared to 12 percent in New Zealand, more households across the Tasman felt the impact of rate rises immediately, she said.
There was a risk of an over-correction in New Zealand rate rises, but the Reserve Bank wanted to retain its credibility by returning inflation to its target band, she said.
"At the moment, with inflation expectations and inflation itself still well above the target band it does want to still continue to talk tough on inflation so that ... you get that dampening of demand continuing to gather momentum."
"Sometimes ... you only tend to see in hindsight how much you've done."