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Traders split on April rate cut

NZ NewswireNZ Newswire 22/04/2016 Paul McBeth

Graeme Wheeler, governor of the Reserve Bank of New Zealand © Mark Coote/Bloomberg Graeme Wheeler, governor of the Reserve Bank of New Zealand Traders are split on whether Reserve Bank governor Graeme Wheeler will deliver another interest rate cut next week.

Financial markets are judging a 54 per cent chance of the official cash rate staying at 2.25 per cent at next Thursday's review, according to the overnight index swap curve.

Economists are leaning towards a cut coming in June when RBNZ governor Graeme Wheeler could explain the bank's outlook more fully in a monetary policy statement, rather than next week's one-page release.

Mr Wheeler surprised the market last month when he cut the benchmark rate to a new record low.

While recent inflation figures were in line with the central bank's projections for an annual increase of 0.4 per cent in the year to March 2016, the kiwi dollar has remained strong as international central banks continue to print money and run extraordinarily low interest rate policies.

"While the March surprise highlights the potential for another (OCR cut), the RBNZ has expressed a preference for moving on MPS as opposed to review dates in the absence of material shifts in information," ANZ Bank said.

Westpac chief economist Dominick Stephens said the only reason the Reserve Bank would choose to lower rates next week was if it had already decided that the OCR needed to go below 2 per cent.

ASB Bank chief economist Nick Tuffley said it was finely balanced and would come down to whether Mr Wheeler was more concerned Auckland's housing market or the persistent strength of the kiwi dollar.

Kiwibank economist Zoe Wallis, the only local forecaster to pick the March cut, predicts another reduction next week, citing the strength of the kiwi dollar, soggy business confidence, a deteriorating trade outlook and elevated bank funding spreads.

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