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RBNZ to keep interest rate on hold, record low level of 1.75%

RBNZ to keep interest rate on hold, record low level of 1.75%

WELLINGTON: The Reserve Bank of New Zealand (RBNZ) is widely expected to keep interest rates on hold at a record low 1.75 percent on Thursday and to reiterate the risks are finely balanced.

All 11 economists expect rates to remain on hold with the median showing no chance of a rate hike or cut. The odds of governor Graeme Wheeler lifting the rate this week is also zero, according to the overnight interest swap curve.

In February, the central bank kept interest rates on hold and signaled that a rate increase wouldn’t be on the cards until mid-2019. In a subsequent speech, Wheeler said the bank sees the risks evenly balanced in respect to the official cash rate, which could go either up or down, depending on whether there was an unexpected shock. Thursday’s statement is expected to reiterate that view.

Economists are still widely tipping the bank to remain on hold for some time although several expect a rate hike as early as May 2018 given recent signs of inflation.

In the short-term, however, “we expect the RBNZ to maintain a very neutral tone at this week’s OCR Review, reinforcing our view that significant global uncertainties and independent changes to retail interest rates buy it time amidst a rising inflation profile,” said ANZ Bank New Zealand chief economist Cameron Bagrie.

Last week’s weaker-than-expected gross domestic product data served to reinforce this view.

The economy expanded 0.4 percent in the December quarter, less than half the 1 percent gain that the central bank forecast in February.

Kiwibank chief economist Zoe Wallis pointed to several “surprising developments” since the central bank’s February rate decision, including a fall in GDP growth, a lower currency, a drop in global oil prices and price indicators suggesting a jump in near-term inflation.