Woke up expecting to see a few pips in the bag - but alas not so [V]

New Zealand business confidence improves
From correspondents in Wellington
10oct06

NEW Zealand business confidence improved sharply in the September quarter, a survey showed today, raising expectations the central bank may decide to raise interest rates.


The independent New Zealand Institute of Economic Research (NZIER) survey for the September quarter showed a net 19 per cent of firms expected a deterioration in the general business situation in the next six months.

However, despite being negative, the figure was the least pessimistic for the last 18 months and down from a net 44 per cent in June and 61 per cent in December.

Economists were surprised with figures that showed capacity utilisation increased for the first time since December 2004. Utilisation reached 92.3 per cent in the September quarter, up from 91.4 per cent in the June quarter.

The NZIER acknowledged the figure would be of concern to the central bank.

Reserve Bank of New Zealand governor Alan Bollard last month said he had become less sure that the official interest rate of 7.25 per cent would not need to rise again during the current business cycle.

Despite a slowing of economic growth to 1.9 per cent annually in the June quarter, inflationary pressures remain strong. Inflation is running at 4 per cent, above the 1-3 per cent band within which the central bank is mandated to maintain price rises.

The ANZ Bank said the business confidence data showed the threshold for a rates increase had been crossed.

"Given recent developments, we believe the risk of a hike (in interest rates) is now greater than 50 per cent, and the Reserve Bank will need a strong reason or calamity at this point to pause,'' the bank said.

The BNZ Bank said a combination of intentions by businesses to hire more workers and to raise prices and the leap in capacity utilisation were worrying.

The bank said it had shifted its probability of an interest rate rise this month from 25 per cent to a 40-45 per cent risk.

"However, we can't but think that governor Bollard really doesn't want to do this if he can avoid doing so,'' the BNZ said.

From The Australian