Little change expected from Reserve Bank

Reserve Bank Governor Alan Bollard will release a statement on Thursday. Photo / NZPA

The Reserve Bank is unlikely to lift its official cash rate before December but market observers will be carefully watching the tone of the statement to be released on Thursday by bank governor Alan Bollard.

In his December statement, Bollard incorporated hefty cuts to the global and local economic outlooks and that tone is expected to continue this week.

"There is very little to add from the previous statement, which was reasonably open-ended in terms of the policy outlook. We expect the Reserve Bank will keep Thursday's statement brief and continue to keep its options open," ASB chief economist Nick Tuffley said.

Despite five proposals and 15 summits among European leaders since the first quarter of 2010, there was little sign of a clear resolution, he said.

The recent downgrade by ratings agency Standard & Poor's of nine European sovereigns highlighted the continued challenges faced by the region.

Adding to the uncertainty were various elections to be held across the eurozone during the first half of the year, including the French presidential election in April, Tuffley said.

In the United States, although household spending remained weak, there were signs of an improvement in the US labour market.

Robust Chinese economic data had also appeased market fears of a global slowdown.

"For now, the global growth outlook is not as weak as the Reserve Bank forecast at the December monetary policy statement," Tuffley said.

Domestically, the recovery was continuing at a gradual pace, he said. Business confidence had eased in light of the uncertainty in offshore markets but that was largely expected.

Economic growth was broadly in line with the Reserve Bank's expectations.

Post-earthquake rebuilding activity was expected to provide a boost later in the year but further quakes in December and January increased the likelihood of a delay, Tuffley said.

"With current inflation pressures subdued, and considerable downside risks to growth, the Reserve Bank has no urgency to increase the official cash rate before December 2012."

- OTAGO DAILY TIMES