1 Feb 2010

Trans Tasman interest gap expected to widen

7:21 am on 1 February 2010

Inflation pressures look likely to result in a widening interest rate gap between Australia and New Zealand.

Radio New Zealand's Sydney correspondent says the days when New Zealand held the dubious distinction of having the developed world's highest interest rates, are gone

Australia now holds the title and looks likely to maintain it for a while longer.

The Reserve Bank of Australia is seen as certain to lift its cash rate on Tuesday by another quarter percentage point to 4%.

If so, it will be the fourth rise since September and will widen the premium over New Zealand rates to 1.5 percentage points.

What's more, as the RBNZ signals it's in no hurry to start lifting its cash rate from 2.5%, Radio New Zealand's correspondent says the RBA is expected to gradually raise rates to at least twice that by the end of the year.

Setting the seal on the next expected move was December quarter CPI data last week showing underlying inflation running at an annual rate of around 3.5%. Food, housing and recreation were the biggest contributors.