Neutral OCR tone expected

The Reserve Bank will leave the official cash rate on hold at 1.75 per cent when it makes its next announcement on the OCR on Thursday, banks agree.

But banks are watching how it may tailor its comments in the wake of disappointing economic growth and a rise in the value of the New Zealand dollar.

Recent financial data, which includes disappointing GDP growth and a drop in construction activity during the first quarter, showed the bank had been right to maintain its neutral bias, ANZ said.

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 its language would be tweaked.

‘‘The RBNZ is likely to reiterate that further depreciation in the New Zealand dollar is needed to achieve balanced growth,’’ 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. Westpac expected the OCR would remain on hold this year and next.