KEY POINTS:
A bearish economic outlook has prompted the ANZ to suggest the Reserve Bank could cut interest rates sooner than expected - but adds it may not help home owners.
At present, the central bank is not forecasting a cut in the official cash rate until the end of
2009, but many economists believe the risk is shifting towards a quarter-point cut before the end of the year, with another early next year.
The ANZ believes rates will remain at 8.25 per cent until the end of the year.
"Yet if the economy unfolds as we suspect it will, the more likely reality is that the OCR moves will be in 50 point clips lower," the bank said.
That would not necessarily translate into relief for those with mortgages, however, as the credit crunch would keep banks from moving in sympathy.
" ... We suspect lower wholesale swap rates may merely be required just to keep retail mortgage rates unchanged, given the high cost of credit internationally ... "
ANZ believes the economy will be softer than the Reserve Bank's 2 per cent per annum growth forecast for the next three years.
"Underlying momentum in the economy is decelerating more quickly than detailed in the bank's projections." The ANZ is forecasting annual economic growth of closer to 1 per cent.
Growth in the September quarter last year was 0.3 per cent if contributions from the Tui oilfield were stripped out and the ANZ believed the dip was unlikely to be short-lived.
The last National Bank business outlook had suggested growth had stalled, housing was already weaker than Reserve Bank and official data were portraying, and the country's high current account deficit was getting increasingly expensive to fund.
It was likely to eventually also place a risk premium on the currency, and the higher cost of credit would be transferred to home owners, the ANZ said.
"Behind the scenes we suspect the Reserve Bank is fully aware of how this channel could impact on growth. But the bank is waiting for evidence in the official data."
However, the ANZ said people should not be overly bearish about New Zealand's economic prospects. A 1 per cent growth rate after the longest economic expansion since the 1960s "still sounds like a positive end to the cycle to us".
BNZ economists agreed the housing "drag" was proving bigger than expected, as the credit crunch impacted on residential construction.
It expects house prices to fall 10 per cent this year and home building activity to fall at least 15 per cent.
January's retail trade figures, due on Thursday, were also expected to extend their flattening trend .
"The more we think about it, the more we believe the economy faces a very bumpy next 12 months," BNZ economist Craig Ebert said.
- NZPA