Economists expect RBNZ to leave OCR unchanged

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Benign inflation numbers put paid to any expectations Reserve Bank governor Alan Bollard to hike rates on Thursday and the debate is now focused on the first rate rise of the current cycle coming somewhere between March and June.  

Sunday, January 24th 2010, 9:09PM

by Jenny Ruth

All 12 economists surveyed by www.mortgagrates.co.nz expect Bollard to leave his official cash rate (OCR) at 2.5% where he has left it since April 30 last year.

"Whilst at the margin the recent dataflow has been inflation friendly, we expect that the bank's updated statement will read much like the ... December monetary policy statement," says Darren Gibbs at Deutsche Bank.

Gibbs expects the first rate hike will be 50 basis points on April 29. "The risks around this forecast remain weighted towards a slightly later start to the tightening cycle - at the June 10 meeting, for example."

Figures showing inflation was flat in the December quarter caused Annette Beacher at TD Securities to push out her forecast timing of the first rate hike from March to April. The data "gives the reticent Reserve Bank more flexibility to leave the cash rate at the record low level," Beacher says.

Jane Turner says "a prudent central bank should not leave the punch bowl out at the party for too long" but nothing in the recent data will push Bollard to start removing current stimulatory conditions as early as January or March.

By April, Bollard should have confirmation the recovery has become self-sustaining and will be more confident the economy can withstand the withdrawal of stimulus, she says.

Michael Gordon at Westpac says current short-term interest rates "are a long way from normal," suggesting Bollard "will be doing a lot of work over the next couple of years to return policy to more normal settings" because the economy has clearly moved into a recovery phase.

 

 

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FULL RBNZ SPEECH: OCR unchanged at 2.5% »

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