Short-lived rates rise is expected

Press, 27 November 1986, Page 26

Short-lived rates rise is expected

PA Wellington A post-tax period rise in interest rates is likely to be both short-lived and good for the control of inflation, according to analysts with Wellington stock brokers O’Connor Grieve and Co. Since the September tax payments period, interest rates have risen sharply — from a low of just under 14 per cent to current rates of 19 per cent for 90-day money. However, O’Connor

Grieve said the mediumterm outlook for rates is lower. The analysts put the rise in interest rates down to two factors: • An upward jolt in inflationary expectations. • Tightened liquidity by the Reserve Bank. The September quarter rise in the consumers price index of 3.3 per cent, and the 10 per cent rise in the October food price index were both higher than the market expected, they said.

Coupled with indications that the economy was more buoyant than most had predicted, this data led the market to rerate the expected level of inflation upwards — and nominal interest rates followed suit. At the same time, the easing in liquidity leading up to the September tax period — allowing financial institutions to build up enough funds to meet the tax payments — had now been reversed.