Benchmark interest rate firmly on hold
The Reserve Bank will leave the official cash rate (OCR) on hold at a record low 1.75 per cent when it makes its next announcement on the OCR on Thursday, banks agree.
But banks are watching how the Reserve Bank may tailor its comments in the wake of disappointing economic growth and a rise in the value of the New Zealand dollar.
ANZ said recent financial data, which included disappointing GDP growth and a drop in construction activity during the first quarter, showed the Reserve Bank had been right to maintain its neutral bias.
The market was continuing to push out rate hike expectations, it said.
With spare capacity in the economy gradually being eaten up, the bank would lean towards raising interest rates at some stage, ANZ forecast.
‘‘But it is a long way away from embracing that mind-set. Instead its focus is on evidence that actual inflation is picking up and broadening. We’re simply not seeing that at present,’’ it said.
‘‘We expect very similar wording to that expressed in the May monetary policy statement – a case of ‘ move on, nothing (much) to see here’.’’
ASB also expected the Reserve Bank to maintain an ‘‘unchanged neutral tone’’ but expected its language to be tweaked.
‘‘The RBNZ is likely to reiterate that further depreciation in the New Zealand dollar is needed to achieve balanced growth,’’ it said.
That was given that the trade weighted index of the kiwi against other currencies had lifted again, it said.
Westpac said financial markets could be rattled if the bank repeated a comment from its chief economist in May that there was an equal likelihood of rate cuts or hikes. Markets were largely focusing on ‘‘rate hike scenarios’’, it said.
Westpac’s view was that the OCR would remain on hold this year and next, it said.
‘‘While we have pencilled in hikes for early 2019, we’d describe this more generally as being too far away to be precise about the timing.’’
Reserve Bank governor Graeme Wheeler steps down in September and will be replaced by acting governor Grant Spencer. The appointment of a permanent replacement has been delayed for six months, as Wheeler’s term comes to an end days after the general election.