Differing views on what Bollard say about the OCR this week

With one notable exception, economists are unanimous that Reserve Bank governor Alan Bollard will leave interest rates unchanged on Thursday.

Sunday, September 6th 2009, 8:50PM

by Jenny Ruth

But they're about evenly split over whether Bollard will remove his bias towards further easing.

Of the 12 economists surveyed by www.goodreturns.co.nz, only ASB Bank is expecting Bollard to cut the official cash rate (OCR) further from 2.5% to 2.25%.

Jane Turner at ASB argues rise in the New Zealand dollar combined with a steep increase in longer-term interest rates mean monetary conditions have effectively tightened.

"It is crunch time for the Reserve Bank's attempts to influence monetary conditions. In July the Bank stated that continued tightness in monetary conditions could lead to a reassessment of its policy stance. Since July, conditions have tightened further," Turner says.

"If the Reserve Bank is still concerned about tight monetary conditions it now has to decide whether it will follow through on its implied threat and cut, or whether it resigns itself to the role of spectator," she argues.

By contrast, Bernard Doyle at Goldman Sachs JB Were can see a lot of reasons not to cut the OCR further. "When you look at any domestic indicator of the economy, it's picked up since March, broadly speaking," he says.

"There's also the fact that the world has improved markedly since he (Bollard) last cut rates in April." On the other hand, "It's far too early to hike."

Chris Green at First NZ Capital's focus is more on whether or not Bollard will reiterate his statement in July that "theOCR could still move modestly lower over the coming quarters."

"Given the strength of what we've seen, both in the domestic and international data, I think he will move away from his easing bias," Green says.

In particular, recent rises in commodity prices are likely to make Bollard more comfortable that there's some economic justification for the rising New Zealand dollar, Green says.

New Zealand's commodity prices overall rose in August for the sixth consecutive month and were up 12% from their lows in February, the ANZ Commodity Price Index shows.

« ASB takes floating rate to historical low

OCR unchanged at 2.5% »

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