Friday 22nd March 2019
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New Zealand's Reserve Bank is expected to keep rates on hold at 1.75 percent at next week's monetary policy review and reiterate the next move could be up or down.
Economists, however, remain split on whether or not a cut is actually on the cards down the track.
At its most recent review in February, the central bank said it expected to keep the official cash rate "at this level through 2019 and 2020. The direction of our next OCR move could be up or down."
While economists expect the central bank to repeat that key message, it may acknowledge some changes since the last statement.
"Concerns over the health of the global economy have grown, global central banks have become more dovish, the tenor of domestic and global data has waned and the domestic mood is sombre following the terrorist attacks in Christchurch.
"At this time there is the clear need for government policy institutions to stay on message to provide continuity and reassurance," said ASB chief economist Nick Tuffley.
He acknowledges the risk of a possible cut down the track "but for now, we are sticking to our call for the OCR to remain on hold through till early 2021."
Westpac Bank's chief economist Dominick Stephens noted a few elements of the domestic economy have been weaker than the RBNZ anticipated. Recent weak house sales data might cause the central bank to lower its house price forecast a bit, and GDP in the December quarter was a touch weaker than the RBNZ’s February forecast.
"But overall, the RBNZ can still credibly stick to the view that the economy is set to pick up this year, especially in light of very strong consumer spending and building consent numbers coming through recently," he said.
While central banks worldwide have shifted to more dovish stances, "this global economic situation is probably in line with the RBNZ’s expectations from February, rather than being any kind of surprise," he added.
Stephens also said that the upcoming change to a monetary policy decision-making structure is another reason to expect a "steady-as-she-goes" approach from the central bank.
"The fact that a committee is about to take over probably creates a higher hurdle for the Governor to take decisive action on the OCR outlook right now – after all, the committee could take a different approach to the current leadership," he said. He expects the membership to be announced shortly.
Governor Adrian Orr will deliver a speech on Friday, two days after the OCR review, about how monetary policy decisions are made in New Zealand, including greater transparency and accountability.
Capital Economics Australia and New Zealand economist Ben Udy doesn't expect the RBNZ to cut rates.
"Weighing the influence of the tight labour market and gradually rising inflationary pressures against subdued GDP growth, we think the bank will opt to leave the official cash rate at 1.75 percent until late 2021," he said.
ANZ Bank, however, continues to expect a cut sometime around November. "As the economy fails to accelerate out of its dip, the case for easier monetary policy will become clearer," chief economist Sharon Zollner says.
"The local economy has slowed, and downside global growth risks are accumulating; the RBNZ will continue to acknowledge as much – as they did in February.
"However, there is a lot more data to flow under the bridge. Our call for an OCR cut in November is based on a steady accumulation of small disappointments, rather than a dramatic turn for the worse," she said.
The decision is due Wednesday at 2pm local time.
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