New Reserve Bank governor expected to proceed with caution in tepid market.

New Reserve Bank governor Graeme Wheeler is expected to proceed gingerly when he delivers his first official cash rate decision on Thursday.

Economists expect him to keep the OCR on hold at 2.5 per cent and in the brief accompanying statement to give little away about whether he reads the economic outlook significantly differently from his predecessor, Alan Bollard.

For that, the financial markets will have to wait until the next full monetary policy statement on December 6.

Market pricing implies the next move in the OCR will be a cut, perhaps as soon as March next year.


But the consensus among 17 economic forecasters polled by Reuters is that the bank's next move will be to raise the OCR, with September next year the most common pick as to timing.

The Reserve Bank itself in its September statement pushed back its guidance on when it expected to begin tightening from June to December next year.

Since then the economic landscape has changed very little, Westpac chief economist Dominick Stephens says.

"True, inflation data was slightly weaker than expected, but GDP data was slightly stronger," he said.

The recent round of fixed mortgage rate reductions would act like monetary stimulus.

"But that is probably welcome, given that there have been signs of slower economic growth over the September quarter," Stephens said.

The BNZ-Business New Zealand performance of services index has now joined its manufacturing counterpart in contraction territory.

The New Zealand Institute of Economic Research's quarterly survey of business opinion weakened in September and is pointing to economic growth at an annual pace of around 1.5 per cent over the second half of the year, a slowdown from 2.6 per cent in the year to June.

ANZ's Truckometer and job ads indicators are pointing to weaker growth and higher unemployment respectively.

Deutsche Bank chief economist Darren Gibbs says it is too soon to judge whether this is a lull or the leading edge of the economy's response to lower farm incomes, slowing trading partner growth, exchange rate firmness and tightening fiscal policy, exacerbated by worries about developments overseas.

The International Monetary Fund has cut its forecast for global economic growth, the US Federal Reserve has embarked on an open-ended round of quantitative easing, and China's growth rate has declined.

As we approach a period when the United States' political leaders, whoever they turn out to be after next month's elections, mill around on the edge of a fiscal cliff that could tip the world's largest economy back into recession, and given the potential for fresh waves of instability out of the eurozone, Wheeler may want to hold his fire, retaining the ability to cut the OCR by up to 250 basis points in case the economy is sideswiped by another major global shock.

Another factor in the case for leaving the OCR on hold is the renewed signs of life in the housing market, especially in Auckland, where prices have risen more than 8 per cent over the past year.

"But," said Gibbs, "monetary policy cannot be hostage to the Auckland property market."