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Home / Business / Economy / Official Cash Rate

Pundits pick no change in rates

7 Jun, 2005 08:30 PM2 mins to read

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The Reserve Bank is expected to leave interest rates unchanged tomorrow as its worries about inflation outweigh signs of a slowing economy, tumbling confidence and a firm currency.

The central bank's expected hawkishness is at odds with the market which, after a run of soft data, believes interest rates have
peaked and the next move will be a cut early next year.

Analysts polled by Reuters see the Reserve Bank holding the cash rate at 6.75 per cent - the highest in the developed world.

Unusually, the central bank has twice in the past month spoken out about how it does not see weakness in the economy, aiming to curb any moves by the market to lower borrowing rates.

"The data simply don't justify a further tightening," said Westpac chief economist Brendan O'Donovan.

"Even if the RBNZ discounts any sign of weakness, there is nothing to suggest elevated medium-term inflation pressures."

Building consents in April were down a third on a year earlier, unemployment rose in the first quarter - the first rise in 18 months - retail sales have been soft and business confidence has fallen to its lowest level in nearly 17 years.

Inflation in the year to the end of March was 2.8 per cent, just below the top of the central bank's 1 to 3 per cent target band, but economists said the economy was at a turning point.

In the Reuters poll, all 14 forecasters expected the cash rate would be held steady at the review.

The central bank will issue its decision at 9 am tomorrow.

The Reuters poll showed a median expectation that rates have peaked and will be cut to 6.5 per cent in the first quarter of next year.

"We would be stunned if the RBNZ did raise rates ... as it certainly has the potential to result in an economic 'hard landing', or perhaps even a full-blown recession," said Anthony Quirk of funds manager Tyndall Investment Management.

The bank held rates steady at its last meeting in late April.

- REUTERS

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