OCR likely to remain the same this week

• Tweet

None of the economists are expecting Reserve Bank governor Alan Bollard will shift the official cash rate (OCR) this week and neither are they currently expecting a rate cut this year.

Monday, July 24th 2006, 5:06AM

by Jenny Ruth

Before the last monetary policy statement (MPS) six weeks ago most economists were betting on at least one cut this year.

All 14 of the economists surveyed by Reuters are predicting rate cuts during 2007 with opinions of where the OCR will be by the end of 2007 ranging from 5.5% to 6.5%.

But the wholesale interest rates market has undergone an even bigger sea-change. BNZ economist Dean Ford says that at the time of the June MPS, the futures market was pricing in a rate cut in April 2007.

When the market closed last Tuesday, it was pricing in a 50% chance there will be a rate hike between September and December. It has moderated that view somewhat, by week’s end pricing in only a 20% chance of a rate rise.

Ford says there have been three major sets of data since the last MPS which have changed the market’s view. Firstly, the economy expanded 0.7% in the March quarter compared with the Reserve Bank’s 0.5% forecast which pushed annual growth to 2%.

Then the quarterly survey of business optimism showed that capacity utilisation in seasonally adjusted terms had actually increased when everybody had been expecting a decline.

Thirdly the consumer price index for the year ended June clocked in at 4% compared with the Reserve Bank’s 3.9% forecast.

Ford says it isn’t clear that these data significantly change the economic outlook.

But the central bank will take some comfort from last week’s rise in mortgage rates.

ASB Bank economist Daniel Wills says that Bollard is likely to retain a hawkish line against the likelihood of future rate cuts.

« New round of rate rises

New Bluestone boss »

Commenting is closed

 

Printable version

Email to a friend