Cyclone Gabrielle: Reserve Bank should hold off interest rate rise next week due to cyclone - Kiwibank economists


The Reserve Bank should hold off any interest rate rise next week because of the impact of Cyclone Gabrielle and the national emergency, according to Kiwibank economists.

The central bank is expected to raise the official cash rate by 50 basis points to 4.75 percent next Wednesday as it continues its aggressive rises to combat inflation.

But Kiwibank's chief economist Jarrod Kerr said the RBNZ should consider the current emergency and take a breather.

"A pause from the RBNZ next week would be welcomed by most Kiwi, and highlight that officials are cognisant of the economic damage being inflicted.

"Temporary relief, of all kinds, is needed in the time of crisis."

A rate rise of any size was going to be hard to explain in the middle of a crisis, and furthermore it was not really needed, Kerr said.

"The need to tighten aggressively from here has evaporated. Inflation is peaking at lower levels. And global inflation pressures are abating."

Kerr said the RBNZ could pause without losing credibility or progress in the anti-inflation battle, by signalling it would resume with rate rises in April if needed, which would allow it to get a clearer picture of the impact on growth and activity.

"Many businesses and households have also lost income with an inability to trade during the flooding. Guesstimates of the total economic impact are now in the billions, not millions."

Recovery and rebuilding would give a lift to activity and with it inflation, he said

There was likely to be a sharp lift in economic activity as the nation rebuilt following the disaster, which would be inflationary, especially in construction which was already capacity constrained, Kiwibank noted.

However, Kerr doubted the RBNZ would sit on the sidelines and would press on with an OCR rise, most probably of 50 basis points, as it "looked through the impacts of the disaster".