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Tough call on OCR this week

Jenny Ruth looks at the odds of the Reserve Bank cutting the Official Cash Rate later this week.

Tuesday, April 22nd 2003, 8:00AM

by Jenny Ruth

While the Reserve Bank isn't expected to cut interest rates just yet, most economists now think a rate cut is imminent.

Reserve Bank governor Alan Bollard will announce his latest decision on whether to move the Official Cash Rate (OCR) on Thursday. The OCR has stood at 5.75% since July last year and is the highest among industrialised countries.

Macquarie Bank thinks it will be Bollard's hardest call yet since his appointment in August last year.

It questions whether the central bank is really taking a more growth tolerant approach in line with the new Policy Targets Agreement Bollard and Finance Minister Michael Cullen signed last year.

"The time is approaching for the RBNZ to look through short-term inflation prospects and act by cutting interest rates to stimulate real GDP growth," Macquarie says. Economists now expect annual economic growth will slip below 3% this year compared with 4.4% last year.

Both the New Zealand dollar and inflation are now at or below the central bank's expectations and so shouldn't be as much of a concern, according to ANZ Bank. While previously among the more hawkish, its economists now estimate there's a 40% chance of a rate cut on Thursday.

It and National Bank note the likely dampening impact of the SARS virus on the international economy and ANZ thinks fears about the domestic electricity supply could also slow growth further.

"As things stand at present, uncertainty and the downside risks to the growth outlook are significant," ANZ says.

One of the risks though is the possibility of the housing market overheating. Figures last week showed migration remains strong: the nation gained a net 3,650 permanent and long-term residents in March and a net 41,230 in the year ended March, adding more than 1% to population growth.

Deutsche Bank chief economist Ulf Schoefisch says that because there's a significant backlog of immigrant applications, the net inflow should continue at current levels for most of this year.

He thinks Bollard will start cutting rates soon, but gives only a 30% chance that he will start this week.

« Liquid evaporatesSovereign takes regulation bull by the horns »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 7.99 7.49 7.35
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.39 6.89 6.75
ASB Bank 8.64 7.39 6.89 6.65
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BNZ - Classic - ▼7.29 ▼6.85 ▼6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
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BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.15 - -
Co-operative Bank - Owner Occ 8.40 7.35 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.85 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
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Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
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Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
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Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
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Median 8.64 7.45 7.37 6.77

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