Friday 22nd June 2018
|Text too small?|
Reserve Bank governor Adrian Orr is expected to keep the official cash rate steady at next week's review and some economists say he could even hint rates will be on hold for longer than currently forecast.
All 14 economists polled by Bloomberg expect the OCR to remain at a record low 1.75 percent next Thursday and the median still sees rates unchanged through the forecast horizon going out to the second quarter of 2019.
The central bank has held the benchmark rate at 1.75 percent since November 2016 and at its latest review in May said it will remain at that level for some time to come. Its forecasts show the OCR rising to 1.9 percent in September 2019 from a current 1.8 percent. A full rate increase is still signalled by March 2020 when the benchmark rate is forecast to be 2 percent.
ASB Bank chief economist Nick Tuffley said he expects a "neutral assessment over the outlook for the official cash rate" and while he still anticipates the bank to remain on hold until August 2019, "the risks are slightly more skewed to interest rates remaining on hold for longer."
According to Tuffley, a robust global growth backdrop is at greater risk of being undermined by increasing trade protectionism and pessimistic business confidence and uncertainties from the ongoing Mycoplasma bovis eradication efforts could slow growth relative to the strong fundamentals still in place.
Capital Economics said with "GDP growth likely to fall short of the RBNZ’s projections and inflation set to remain subdued, we anticipate that rates will remain on hold for even longer than the RBNZ or the financial markets currently expect. We suspect that the first rate rise may not occur until 2020." It made the comments after Stats New Zealand Thursday said first-quarter gross domestic product growth was 0.5 percent, below the RBNZ's forecast for 0.7 percent.
It also pointed to weak business confidence, "marooned around its lowest level in a decade since the election-related slump in September last year" and subdued inflation.
ANZ Bank New Zealand senior economist Liz Kendall also said that developments since the central bank's last monetary policy statement have been negative on balance and while "there are reasons to believe some degree of pick-up in inflation is around the corner" economic momentum is softening. As a result, "we see inflation increasing only very gradually."
Kendall expects the central bank to "remain cautious until inflation shows more consistent signs of life." She notes the RBNZ has been very clear that it is determined to meeting its inflation target and therefore it will maintain its 'wait-and-see' approach.
Westpac Banking Corp chief economist Dominick Stephens said, however, that rather than signalling rates would be on hold for longer the details of next week's statement "may be a touch more hawkish."
According to Stephens, over the past six weeks there have been three key developments with the potential to alter the outlook. Petrol prices have risen sharply, which is likely to cause inflation to rise 2 percent - or even beyond - this year. However, he expects the RBNZ to emphasis that petrol prices tend to have a "fleeting effect" and that core inflation remains well below 2 percent. He agreed that the economy is slowing rather than accelerating but said "the government's budget was stimulatory" and on its own could allow the central bank to lift its OCR forecast.
No comments yet
MARKET CLOSE: NZ shares dip as global trade jitters weigh on A2, F&P
NZ dollar set for weekly gain after Reserve Bank surprise
Burger Fuel exploring sale after review questions listing merits
New net migration data to remain rubbery for quite some time
NZX to push sales this year after reshaping business dents 2018 profit
Slowing new orders growth weighs on January PMI
New NZ dry dock a basis for new industry - KiwiRail
Wellington Drive beats 2H sales forecast, will meet earnings guidance
NZIQS decides more training is the answer to past president's misconduct
February 15th Morning Report