Bollard's swansong low interest rates

When Reserve Bank governor Alan Bollard hands down his final OCR announcement on Thursday he is highly unlikely to make any changes for two key reasons.

Monday, September 10th 2012, 6:23AM

One of those reasons is that he hands over the bank reigns to Graeme Wheeler later this month. Another is that domestic economic growth continues its subdued pace and global conditions remain shaky, especially now China's economy is slowing.

All 13 economists surveyed by mortgagerates.co.nz expect Bollard to leave his official cash rate (OCR) unchanged at its record low 2.50% on Thursday.

For once, the economists and wholesale financial markets agree – earlier this year, the markets had been pricing in a chance of an OCR cut.

Despite the changing of the guard at the central bank, the earliest any economist expects the OCR to rise is March next year as most continue to push their forecasts further out – ANZ Bank's economists now expect no change until early 2014.

“There's next to no chance of a change,” says Darren Gibbs at Deutsche Bank. “We're not expecting (Bollard) to do anything radical with a new governor just a couple of weeks away.”

Westpac chief economist Dominick Stephens says there's been no dramatic changes in the economic environment in the past three months.

“There's a limit to the forward guidance he can realistically provide the market with the new governor taking the helm,” Stephens says.

Jane Turner, an economist at ASB Bank, says while Bollard's July statement described the risk of further significant deterioration in Europe as “limited,” recent Chinese data has continued to soften.

“A sustained slowdown in China is arguably more critical for New Zealand than the direct impact of Europe's economic malaise,” Turner says.

“There is growing concern over the sustainability of the Australian mining boom, partly spurred by continuing declines in iron ore prices,” she says. Iron ore makes up about 24% of Australia's exports and prices fell by more than 24% in August alone.

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