Economists agree OCR cut coming

Economists are expecting Reserve Bank governor Alan Bollard will cut the official cash rate (OCR) again when he next reviews it on April 30 with the only debate being by how much.

Thursday, April 9th 2009, 6:31AM

by Jenny Ruth

Of the 11 economists surveyed by Good Returns, eight are expecting Bollard to cut the OCR from 3% to 2.5% while two of the others are expecting him to cut to 2.75% and one is unsure whether it will be 25 basis points or 50. Bollard has cut the OCR from 8.5% since July last year with the last cut of 50 basis points on March 12.

"It’s fair to say it’s a debate between 25 (basis points) and 50. We’re not strongly of the view it will be 50," says Craig Ebert, an economist at Bank of New Zealand, which nevertheless is picking 50 points.

"Clearly they’ve (the Reserve Bank) indicated a preference for slowing down the rate of cuts. We certainly think the economic backdrop justifies at least a 25 point cut," Ebert says.

However much Bollard cuts, he should make it clear he isn’t closing the door on further cuts as well as emphasising he isn’t likely to start raising rates again any time soon, he says.

Hayden Atkins at Macquarie Bank is also picking a 50 point cut. "After attempting to jawbone long-term wholesale rates lower, it is clear that the Reserve Bank is uncomfortable with the current levels of interest rates and will back up the rhetoric with a reasonably sizeable cut," he says.

Last week, Bollard took the unusual step of issuing a statement saying: "We believe the rise in longer-term interest rates is unwarranted and inconsistent with the monetary policy outlook."

Darren Gibbs at Deutsche Bank is picking a 25 point cut on the basis that Bollard has already made substantial cuts and it takes a while before monetary policy starts to take effect.

Gibbs points to recent reports of activity in the housing market picking up. "That suggests mortgage rates are now sufficiently low," he says. As well, the Reserve Bank of Australia cut its official rate by 25 basis points this week.

Tags: OCR