by Paul McBeth
The Reserve Bank left the Official Cash Rate alone at this morning's review, in spite of greater inflationary pressures but in line with most expectations given easing global growth.
The OCR has been stuck at 6.5 per cent since last May. It's next up for review on March 14, coinciding with the RB's March Monetary Policy Statement.
Governor Don Brash said that, although CPI was marginally higher than they'd expected in the December quarter, the main factors driving the spike were one-off.
He said that other one-off factors also suggested that the peak in the CPI might be rather shorter than first thought so that the Bank could prudently leave the OCR unchanged.
Brash said that the exchange rate had strengthened since the RB's December Monetary Policy Statement but, perhaps more importantly, expectations for global growth this year had slowed appreciably. "This fall-off in expected growth has been most notable in the United States, but is also a feature of the outlook for Australia and for much of Asia."
In their latest weekly market review, ASB Bank economists pointed out that the RB announcement was the first of a central bank trilogy, with the US Federal Reserve expected to lower its cash rate next week and the Reserve Bank of Australia to do the same the following week. "The net effect - a higher New Zealand dollar."
Earlier this month, announcing a cut in WestpacTrust's floating mortgage rate in anticipation of no OCR rise today, Chief Economist Adrian Orr said that the RB's next move was likely to be a OCR cut around the middle of this year. "Given that we are now in a flat to declining interest rate environment, borrowers should consider sticking with the floating rate in anticipation of further reductions in longer-term interest rates later in the year."