Reserve Bank governor Alan Bollard is practically universally expected to leave interest rates unchanged on Thursday, but he is likely to reiterate that he doesn’t see any scope for cutting rates any time soon.
Bollard’s last move was in December when he raised the official cash rate (OCR) to 7.25%.
There is a range of views amongst economists about when rate cuts will start. ANZ/National Bank has pushed its expectations of a rate cut back from September to December due to recent economic news.
ANZ/National’s change of mind brings it into line with Bank of New Zealand’s view that the first rate cut will be in December at the earliest and that there’s a big risk it will be later.
BNZ also notes that the government’s Working for Families package kicked in from April 1, providing substantial economic stimulus.
Other economists are more sanguine. Robin Clements at UBS New Zealand says he continues to pencil in a start to the easing cycle for June or July.
"The real economy is slowing faster than the Reserve Bank envisaged, while the labour/housing risks look under control," Clements says.
Westpac is also expecting the central bank to start cutting rates in July. Petrol price increases will drive the headline inflation rate higher "but real activity indicators have been weak and will, in time, bring lower domestic inflation."
Daniel Wills at ASB Bank still puts the earliest OCR cut at September or October. He notes that the wholesale interest rate market is pricing in an above 50% chance of rate cuts from September.
Darren Gibbs at Deutsche Bank says he expects Bollard will make it clear that the case for an easing at the September or October reviews is yet to be proven.
He still expects a September easing "although the balance of risks around this call are heavily skewed towards a later easing."
