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Interest rate decision looms

NZN 5/02/2017 Rebecca Howard

The Reserve Bank's view on where interest rates might go down the track will be the focus of attention at Thursday's rate review, given it's widely expected to keep rates on hold at a record low 1.75 per cent.

All 10 economist polled by BusinessDesk expect rates to remain on hold Thursday. The odds of governor Graeme Wheeler lifting the rate next week is zero, according to the overnight interest swap curve.

There is some speculation the central bank may rejig its forecasts given the strength of the domestic economy, some signs of emerging inflation and the fact that the US Federal Reserve is on a tightening track.

As a result, "the RBNZ's published OCR track will be much watched," said ASB Bank chief economist Nick Tuffley.

New Zealand's central bank is fairly unique globally in that it publicly forecasts where it expects interest rates to go over a three-year period.

In November, it cut rates by 25 basis points to 1.75 per cent and forecast they would remain at that level until the end of 2019.

The solid economic backdrop has led the market to fully price in a rate hike by November but economists are more cautious with most expecting the first hike to come in 2018, according to the poll.

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