Rate hikes un­likely un­til 2018


Weaker than ex­pected growth is likely to see the Re­serve Bank leave in­ter­est rates on hold this week, with any rises look­ing in­creas­ingly dis­tant.

On Thurs­day the Re­serve Bank will an­nounce its lat­est re­view of the of­fi­cial cash rate (OCR), with econ­o­mists ex­pect­ing no change this week, or for months to come.

Ear­lier this year mar­ket pric­ing of fi­nan­cial prod­ucts tied to in­ter­est rates sug­gested the OCR would be in­creased from the cur­rent 1.75 per cent in Au­gust.

A string of weak data in re­cent weeks has soft­ened ex­pec­ta­tions, with pric­ing sug­gest­ing the mar­ket be­lieves there is a less than 50 per cent chance of any in­crease this year.

The OCR has a strong in­flu­ence on the cost of mort­gages and the re­turns on sav­ings in New Zealand.

How­ever, a move to­wards higher global in­ter­est rates, driven by the United States, has caused con­sumer in­ter­est rates to drift higher in New Zealand, even as the OCR stays at a record low.

In Fe­bru­ary Re­serve Bank fore­casts sug­gested the OCR could be un­changed for two years, while in a speech in early March gov­er­nor Graeme Wheeler said there was an even chance that the next move could ac­tu­ally be a cut.

On March 16, of­fi­cial fig­ures showed that the econ­omy ex­panded by 0.4 per cent in the fi­nal three months of the year, well be­low the 1 per cent the Re­serve Bank had ex­pected.

West­pac act­ing chief econ­o­mist Michael Gor­don said there had been a ‘‘sig­nif­i­cant short­fall’’ be­tween what the Re­serve Bank had ex­pected and how the econ­omy had per­formed.

‘‘[T]he bal­ance of eco­nomic news in re­cent weeks has been on the softer side, mak­ing the case for an OCR in­crease look even more dis­tant,’’ Gor­don said.

ANZ chief econ­o­mist Cameron Ba­grie said the eco­nomic growth fig­ures painted an un­flat­ter­ing pic­ture of the econ­omy.

‘‘It is of course never pleas­ant to see things like real ac­tiv­ity con­tract­ing in per capita terms or an­nual growth falling back be­low 3 per cent at a time when core in­fla­tion is not yet back to tar­get.

‘‘But the un­der­ly­ing story is bet­ter than this,’’ Ba­grie said.

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