Markets still pricing in interest rate cut

Financial market pricing is extremely volatile - early last week, the markets had priced in at least two rate cuts and probably three before year's end but, on the back of stronger than expected economic growth numbers and employment data in Australia and despite disappointing domestic data lately, they're now pricing in a single cut in September with the possibility of another in the December quarter.

Only one economist, Gareth Kiernan at Infometrics, is predicting a cut in Bollard's official cash rate (OCR) from 2.5%0 to 2.25% and he rates that a 55% chance.

"It's certainly a line call, but there's still enough reason if they want to cut," Kiernan says, citing falling commodity prices, tame inflation and economic turmoil globally.

All 12 of the other economists www.goodreturns.co.nz surveyed are predicting Bollard will keep the OCR on hold and his next move will be to hike it 25 basis points to 2.75%, nine of them forecasting it will come in March next year and the other three in June next year. Kiernan is also expecting a hike in June next year.