Steady as she goes for interest rates this week
The Reserve Bank is not expected to pull any interest rate surprises when it issues its monetary policy statement on Wednesday, leaving the official cash rate at 5.5%, economists say.
ASB chief economist Nick Tuffley said in a note the Reserve Bank would keep a similar assessment from its February monetary policy statement (MPS).
“It will have a very high threshold for lifting the OCR any further.
‘‘But it is also some time away from cutting the official cash rate (OCR) or giving off smoke signals to that effect,’’ Tuffley said.
Short-term inflation looked set to be slightly on the high side of the central bank’s expectations and growth was likely to be slower and inflation implications of the Government’s Budget in May were still unclear.
“November is still our pick for the most likely timing of the first OCR cut.
‘‘That date gives enough time for the Reserve Bank to get three quarters of inflation, inflation expectations and labour market data, which we see as the more important gauges the Reserve Bank will use for determining it has inflation sufficiently tamed.
“With the upcoming inflation data for the first quarter unlikely to give much comfort,
Nick Tuffley
ASB chief economist
it looks realistic for the Reserve Bank to wait for a further two quarters to establish more certainty.
‘‘That is still a touch ahead of market implied pricing, which anticipates a first cut in August,” he said.
Westpac chief economist Kelly Eckhold said the Reserve Bank would be comfortable with its position in the February MPS even though the economy was slightly weaker and first-quarter inflation appeared likely to be higher than expected.
He agreed that while the markets were pricing a rate cut as early as August, that was unlikely, Eckhold said.
HSBC chief economist for New Zealand and Australia, Paul Bloxham, said inflation was gradually falling but at 4.5% was still well above the Reserve Bank’s 1 to 3% target range.
“A key part of the story is that although goods consumption and production are declining, driving a fall in GDP, services activity has held up well, which has left services inflation sticky and elevated.
“This is partly due to continued demand for services, but critically, because the supply side of the domestic economy has been weak,” Bloxham said.
Employment has grown at 2.4% in December quarter compared to a year earlier despite a weakening economy as businesses sought more workers.
“We expect the Reserve Bank to indicate that rate cuts are still likely to be some time away.”
The Reserve Bank’s own projected cash rate track did not have cuts factored in until mid-2025 and it was likely to maintain that position.
Bloxham expected inflation would fall back into the Reserve Bank’s 1 to 3% target band by the third quarter of this year, allowing for an interest rate cut in the last quarter.
‘‘November is still our pick for the most likely timing of the first OCR cut.’’