OCR “virtually certain” to stay at 2.5%

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Official interest rates are "virtually certain" to stay on hold next week Deutsche Bank economist Darren Gibbs says.

Wednesday, December 2nd 2009, 9:54PM

by Jenha White

In a OCR preview, Gibbs said the Deutsche Bank is convinced that the OCR will be maintained at 2.5% when the Reserve Bank makes its announcement next week.

Economic commentary from ASB Business Weekly also predicted this outcome.

ASB said on Monday that while the RBNZ had moved off its easing bias, it maintained a very dovish tone.

"The bank has stated it sees no urgency to withdraw monetary stimulus and expects to keep the OCR at the current level until the second half of 2010."

The official cash rate has been at a record low of 2.5% since April when it was cut by 50 basis points.

Gibbs says few think there has been enough change in the economic outlook to encourage any increase in the OCR.

"We continue to favour a slightly earlier first hike in the OCR but a lot will depend on how the economy performs over coming months, especially over the important Christmas trading period."

ASB believes the OCR will be hiked up in April because the RBNZ has a substantial amount of policy to unwind and it also predicts that the first steps are likely to be bigger i.e.50 basis point moves.

 "The focus for markets will be on how the RBNZ describes the economy and consequent policy outlook at the announcement next week," says Gibbs.

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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