Bench­mark in­ter­est rate firmly on hold

Central Leader - - HEALTH & BEAUTY - TOM PULLAR-STRECKER

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.

CAMERON BUR­NELL/FAIRFAX NZ

Re­serve Bank Gover­nor Graeme Wheeler steps down in Septem­ber.

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