by Paul McBeth
Prospects of a cut in the Official Cash Rate next week are receding, thanks to stronger NZ and US data as well as the weak Kiwi dollar.
The OCR is up for review Wednesday March 14, the same day the Reserve Bank releases its March Monetary Policy Statement.
One lender which will be taking an especially keen interest is WestpacTrust, which took the unusual step over a month ago of guaranteeing its floating mortgage rate at 8.25 per cent until this OCR review. The bank also brought in a special nine-month rate of 6.99 per cent, which it said was the first time fixed rates had been below seven per cent since January 2000
WestpacTrust is still expecting that the OCR will remain on hold at least til May, saying that the data continues to support their view that momentum is building in the domestic economy while price pressure remains.
Meanwhile, BNZ economists writing in the latest Weekly Overview say the Reserve Bank is expected to ease monetary policy "purely and simply as a precaution against the large hit to export growth and inflation that will come if conditions deteriorate further among our trading partners".
They point out that monetary policies are generally being eased around the world, with the following significant moves recently for our major trading partners:
Japan down 0.25 per cent (cuts of 0.15 per cent and 0.1 per cent)
They note that the US cuts were driven by concerns over a slowdown in the domestic economy, the Australian cut also reflected obvious slowing in the local economy, while the cuts in Japan were driven by new weakness in Japanese consumer spending, exports, the sharemarket and so on.
"But in the United Kingdom, the single 0.25 per cent cut was driven by concern about the potential for feed-through into slower UK growth of the slowdown in the US economy.
"We believe the Reserve Bank will cut interest rates in New Zealand, but the reasoning will be along the lines of that used in the UK. This is because there is practically no evidence of any deterioration in domestic New Zealand economic activity. In fact, the opposite..."
While the outlook isn't yet clear for US growth, BNZ economists are tipping only cautious easing by the RB - say a 0.25 per cent cut in the OCR next week and two further 0.25 per cent cuts at most. They say that fixed interest rates are possibly at their lows right now, but are likely to have no clear direction for many months.