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Coins - Source: Thinkstock
They say timing is everything and that is certainly the case for Reserve Bank Governor Alan Bollard as he attempts to maintain a balance between economic growth and inflation.
His task is perhaps even more tricky this year after two mis-timed rate hikes in the middle of last year, implemented just as the economic recovery shuddered to a halt.
Data just before Christmas confirmed the economy contracted 0.2% in the three months to September.
This week Dr Bollard indicated he will be taking a cautious wait-and-see approach to future hikes and, as expected, kept rates on hold at 3%.
He wants to see hard evidence this time that the economic recovery is not only underway, but sustainable and able to maintain momentum as interest rates go up.
I don't mean to imply that those two quarter-percentage-point hikes mid-2010 caused the economy to run out of steam, but they still had an impact.
ASB's Chief Economist Nick Tuffley says "the recovery was starting to go through a soft patch anyway, but it (rate hikes) would have certainly impacted business confidence".
This is important, because business confidence affects businesses' investment decisions which, logically, impact on economic growth. Tuffley says inflation concerns won't really flare up until next year so the Governor's primary concern will be protecting what growth there is by not moving too soon.
Too late
But what is considered 'too soon' is open to interpretation - what is seen as too soon for some, is far too late for others.
In the latter camp is Roger Kerr from Asia Pacific Risk Management.
He says that by the time Dr Bollard has firm evidence - that is, the stats from Statistics New Zealand - that the recovery is solid, the inflation cat will be out of the bag. Then, he says, the risk is rates will have to go up much more quickly.
"If it's left too late, we see there being potential collateral damage with the exchange rate going up and that hurting the export sector," he says.
His concern is not just how long it takes for the stats to confirm the state of the economy, which I've bemoaned before, but how long it then takes for interest rate hikes to have an impact.
He believes the impact of the first few hikes won't do much. Market rates are already sitting at around 5% because that's the current cost of funds for Banks, despite the OCR being at 3%.
But Tuffley argues the hikes will be felt more immediately than they were back in 2007 when the Official Cash Rate went all the way up to 8.25%, because a greater proportion of borrowers are on floating or short-term fixed rates.
I should point out the vast majority of commentators are with Tuffley on this one; that the Governor need not be in any hurry and can afford to wait for solid evidence.
But Kerr still suggests Dr Bollard may be acting too timidly because his timing was off last year.
Whether he has a point, well, only time will tell.
