Nz heading for interest rate increase?

New Zealand’s central bank will raise interest rates this year, most economists in a Bloomberg News survey said, after a report showed manufacturing and farming led the fastest quarterly growth in more than a year.

ASB Bank Ltd. economist Jane Turner changed her forecast for a rate increase to December from January after Statistics New Zealand said gross domestic product rose 0.8 percent in the three months ended March 31. Analysts at Goldman Sachs & Partners New Zealand Ltd. and TD Securities Inc. are reviewing their forecasts for no Change in rates until 2012.

New Zealand’s dollar reached the highest since currency controls ended in 1985 after the GDP report added to signs the central bank may raise its benchmark rate from a record-low 2.5 percent in the fourth quarter. Reserve Bank Governor Alan Bollard last month said the pace and timing of increases in borrowing costs will be guided by the speed of the economy’s recovery after a Feb. 22 earthquake.

“There’s no reason to have the cash rate at 2.5 percent,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney who accurately forecast the quarterly GDP increase. He predicts a rate rise in October, having previously forecast an increase in December.

Source:  Bloomberg.com