Economists are expecting a more downbeat tone to the Reserve Bank's Monetary Policy Statement this Thursday, but no surprises as it tries to retain flexibility in when it will start policy tightening.
ANZ Market Focus says it expects the Official Cash Rate (OCR) to be left unchanged at 2.5% and the timing of the tightening cycle vague to give the Reserve Bank flexibility.
"Specifically we struggle to see why the Reserve Bank would continue to include references to "the middle of 2010" in regards to tightening policy, given that we are now already in March."
It puts the patchiness in economic momentum down to four reasons, a backdrop of household deleveraging and a structural imperative to improve New Zealand's external position, some success the Reserve Bank is having with its liquidity regime, continued global unease and some uncertainty regarding impending tax changes...MORE»
Softer than expected inflation, retail sales and employment data and signs the housing market recovery has stalled will likely mean Reserve Bank governor Alan Bollard leaves interest rates unchanged on Thursday and he will reiterate the first rate hike is likely about mid-year.
New Zealand is getting to the stage where it may make sense to fix mortgage rates at one or two years according to BNZ economist Tony Alexander as he previews next week's Official Cash Rate announcement.
Despite the National Bank Business Outlook survey suggesting a recovery for 2010 remains on track, most economists believe other data shows volatility.
Westpac's New Zealand subsidiary's mortgage book galloped away in the December quarter, growing much faster than its market share and at nearly double the rate of the previous quarter.
Bank of New Zealand's December quarter net profit rose, thanks to a tax credit as a result of its settlement with the Inland Revenue Department over its structured finance transactions.
The graph shows the significant movement in mortgage interest rates that has been experienced within past decade. Since 2000 the floating rate has peaked at 10.7% in mid 2008. The highest floating rates were 20.5% back in June 1987.
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