Economists expect no change in OCR this week

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Economists expect recent data has been sufficiently soft to allow the Reserve Bank governor Alan Bollard to leave interest rates unchanged when he reviews his official cash rate (OCR) on Thursday.

Sunday, January 22nd 2006, 10:12PM

by Jenny Ruth

That data includes business confidence plunging to a 30-year low and the annual inflation rate easing to 3.2% for calendar 2005 from 3.4% in the year ended September, below the Reserve Bank's forecast but still higher than Bollard's zero to 3% target.

As well, the economy expanded just 0.2% in the September quarter, below expectations, and the number of houses sold in December fell to 6906 from 9357 in November and 8546 in December 2004.

Bollard has raised rates nine times since early 2004 to 7.25%.

ASB chief economist Anthony Byett says that, since the central bank last raised rates in early December, economic statistics have been weaker than expected, letting Bollard keep rates on hold.

"But the figures still show that inflationary pressures are large and that the demand momentum still has some life," Byett says.

"Furthermore, there remains the risk that lending activity could accelerate again should medium-term interest rates continue the downward trend of recent weeks."

So far this year, ASB has cut its two-year fixed mortgage rate from 8.30% to 8.15% and its three-year fixed rate from 8.30%0 to 8.05%.

Macquarie Bank's economists say that given that leading indicators in New Zealand have deteriorated significantly in recent months, the Reserve Bank "has some additional leg-room to stretch out, sit back and take a breather from any imminent rate action."

UBS New Zealand economist Robin Clements says that with both business and consumer confidence at recessionary levels, that should ensure growth will slow further. "Accordingly, there is no case for further rate hikes in our view."

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