MNI INTERVIEW (CORRECTED): NZ Rates At 1.5% By End 2022

(Corrects story to make clear that the RBNZ could hike again in November and February, and to clarify the interviewee's name)

A member of the 'shadow' board of the Reserve Bank of New Zealand believes the central bank will continue to hike rates to 1.5% by the end of 2022.

Jarrod Kerr is the chief economist at publicly owned Kiwi Bank and a member of the 'shadow' RBNZ created by economic think tank, the NZ Institute of Economic Research.

In an interview with MNI, Kerr said he believed the RBNZ – which raised rates by 25bps to 0.50% in October – would hike again in November and also in February, see: MNI STATE OF PLAY: RBNZ Hikes Rates, Signals More To Come.

"The decision not raise rates is not a 25bps decision, it's something which involves taking policy back to something closer to normal," Kerr said.

"By the end of 2022 I think 1.5% is where they should be, and that's what I consider to be a neutral setting given the economy."

DIVIDED IN OCTOBER

The shadow board was divided on the merits of a rate hike in October, with some members erring on the side of caution due to the lockdown but Kerr supported the move.

He described the NZ economy as "overheated" which full employment, inflation running higher than the 1% to 3% RBNZ target range and with house prices up 31% in the last year.

"You couldn't possibly dream of not normalising policy now," Kerr said.

While ongoing lockdowns in Auckland could weigh on the outlook, "95% of the economy is running on all cylinders."

Kerr also said he believed the NZD, currently at US70 cents, was currently undervalued given that the terms of trade were at a 160-year high.