Economists again expect Reserve Bank governor Alan Bollard will leave interest rates unchanged when he reviews his official cash rate (OCR) on Thursday.
If they’re correct, it will be the sixth time in a row that the governor has done nothing after reviewing the OCR which currently stands at 7.25%. The last time Bollard acted was in December last year when he raised the OCR from 7% - 'Dr Do Little', says Westpac economists Brendan O’Donovan and Nick Tuffley.
His expected inaction is despite the fact that inflation expectations continue to soar and a number of stronger than expected data including the 0.7% growth in the economy in the March quarter compared with the Reserve Bank’s 0.5% forecast and the record low unemployment rate of 3.6% at the end of June.
Macquarie Bank economists that the economy’s surprising resilience 'may result in the Reserve Bank warning that rates will have to remain higher for longer than the financial markets currently think likely.'
They are expecting Bollard will swing back to a more hawkish stance than at the last review in July, although they see a risk that the recent strength of the currency may encourage him to tone down any hawkish rhetoric. 'The Reserve Bank has continually talked about the devastating impact of a high New Zealand dollar on the external sector,' Macquarie Bank says.
Daniel Wills, an economist at ASB Bank, says Bollard is 'in no mood to precipitate a sharp slowdown' by raising rates, even though the outlook is for both growth and inflation expectations to head down at only a modest speed.
But the shallow slowdown should ensure that Bollard will be in no hurry to cut the OCR, Wills says. The market is currently not expecting a cut in the OCR until at least mid-2007.
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