Rate rise unlikely this week

Reserve Bank governor Alan Bollard is likely to keep interest rates where they are when he reviews his official cash rate (OCR) on Thursday.

Tuesday, April 26th 2005, 6:25AM

by Jenny Ruth

A Reuters poll of 14 economists found on average they think there’s a 75% chance Bollard will do nothing and only a 25% chance he will raise the OCR again. None think he’s likely to lower rates.

He has raised the benchmark rate, which directly influences floating mortgage rates, seven times since the beginning of 2004 to 6.75%.

Of those polled, one economist s expecting Bollard to raise the OCR to 7% in June, 12 expect the OCR will stay at its current level though to the end of the year and one is expecting a cut to 6.5% in December.

ASB Bank economist Kate Skinner says she thinks the tone of Bollard’s statement will be hawkish. "We suspect that the Reserve Bank will not be fully convinced of the need for another rate hike," she says.

But New Zealand’s spending momentum appears to be too strong for our production capacity, raising fears of inflation, she says.

While retail sales continue at the upside of expectations, the housing market remains buoyant and imports are still growing strongly, the rate of decline in net migration has accelerated, consumer confidence has dropped from record levels, the currency remains strong and the pipeline effects of previous rate hikes are still having an impact.

Brendan O’Donovan, chief economist at Westpac, says the patchy nature of economic data suggest the economy is at or close to a turning point. He points out that inflation in the March quarter, up 0.4%, was below the Reserve Bank’s 0.6% forecast.

But he also expects Bollard will "continue talking tough. The focus will remain on the here and now, with most of the emphasis placed on the balance of domestic indicators pointing to high levels of economic activity in the first quarter."

Macquarie Bank’s economists also expect Bollard to deliver "a stern warning of upside risks to inflation over the coming months."

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