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Central bank tipped to keep rates on hold

NZN 20/03/2017 Rebecca Howard

The Reserve Bank of New Zealand is widely expected to keep interest rates on hold at a record low 1.75 per cent on Thursday and to reiterate the risks are finely balanced.

All 11 economists polled by BusinessDesk 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 signalled that a rate increase wouldn't be on the cards until mid-2019.

In a subsequent speech, Mr 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.

"We expect the bank to reiterate concluding comments in their February 2017 monetary policy statement that 'monetary policy will remain accommodative for a considerable period'," said First NZ Capital's director, economics and strategy Chris Green.

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 per cent in the December quarter, less than half the 1 per cent gain that the central bank forecast in February.

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