OCR PREVIEW: Weak inflation and economy extend expectations of low rates

By Pattrick Smellie

Jan. 22 (BusinessDesk) – Economists see no prospect of the Reserve Bank of New Zealand raising the historically low Official Cash Rate at its review this Thursday, and will only be looking for signs on timing later in the year or early 2013 from Governor Alan Bollard.

“Inflation is a complete non-issue,” said the Bank of New Zealand’s chief economist, Tony Alexander, after Thursday’s consumers price index release showed a 0.3 percent CPI fall in the December quarter.

“My mortgage position comment this year is a very easy one. I stay floating,” he said, indicating an expectation that interest rates are bedded in around current levels for the time being. “Our economy is weak and interest rate pressures minimal.”

Also released in recent days have been a slew of regular business and consumer sentiment surveys indicating pessimism and thrift are on the rise again among New Zealand businesses and consumers as the world economy generally, and the Eurozone in particular, faces another tough year.

“Despite five proposals and 15 summits since Q1 2010, there is little sign yet of a clear resolution” to the Eurozone crisis, said ASB Institutional in a note on the outlook for 2015.

There was “little urgency” for the OCR to rise before late in 2012, 2with “risks skewed to a later start,” the bank’s economists said, although recent data from both China and the U.S. gave some cause for optimism for slow improvement in global economic conditions. Debt-strained European governments also came through the first bond auctions of 2012 last week, paying much lower interest rates than late last year.

“The RBNZ has very little to add from the previous statement in early December, and we expect the RBNZ will keep Thursday’s statement brief.”

In its commentary on the OCR in 2012, UBS Investment Research said “we still do not see a meaningful risk of the bank cutting the OCR,” except in the event of a worst-case scenario outcome in Europe.

(BusinessDesk)

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