Rate hike push out to 2018

Weaker than expected growth is likely to see the Reserve Bank leave interest rates on hold this week, with any hikes 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 probably be increased from the current 1.75 per cent in August.

But official figures show the economy grew by less than the Reserve Bank expected. Now the odds of any increase in the OCR in 2017 has dropped below 50 per cent.

The OCR has a strong influence on the cost of mortgages and the returns on savings in New Zealand; however, retail rates have increased as the United States pushes up global interest rates.

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 forecast.

Growth in the September quarter was also downgraded.

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, with growth expected to bounce back in 2017.

‘‘The underlying story is better than this.’’