Economists tip cash rate to stay at record low

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 1.75 per cent 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 per cent 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 per cent in September 2019 from 1.8 per cent. A full rate increase is still signalled by March 2020.

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.

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.”