An outside chance of an OCR cut this year

Economists haven't changed their official forecasts of expecting a rate hike early to mid-year in 2013 but a number of them are talking about an outside chance the Reserve Bank will cut rates this side of Christmas, largely depending on how bad the European crisis becomes.

Tuesday, May 29th 2012, 12:17PM

by Jenny Ruth

Gareth Kiernan at Infometrics is the only economist predicting the Reserve Bank will cut its official cash rate (OCR) in June but he sees the chances of that diminishing now the currency has come off its highs.

When he made that OCR forecast, and rated it a 70% chance, the currency was trading above 82 US cents; it's now down to just above 76 cents.

Kiernan says he now rates the chances of a cut at about 55%. Such a cut would be more in the nature of an "emergency cut," similar to the one after the February 22 Christchurch earthquake last year, he says. But, like all other economists, he's expecting the OCR to rise next year and has a 25 basis point hike pencilled in for June 2013.

Michael Gordon at Westpac says there's a one in four chance of an OCR cut this year but doesn't think a June 14 (when the next monetary policy statement is due) cut is on the cards because he expects Reserve Bank governor Alan Bollard will await the outcome of the Greek election on June 17.

"The Reserve Bank's more likely to be reactive - it's just so vastly uncertain," Gordon says.

Nick Tuffley, chief economist at ASB Bank, thinks there's a 33% chance of a rate cut before year end. "If we have a pretty untidy outcome (in Greece) and it sets off a tidal wave around Europe, it will have an impact on the rest of the world."

Darren Gibbs at Deutsche Bank doesn't think the central bank will cut in June but rates a July cut an outside chance. Earlier today, wholesale financial markets, which have been extremely volatile of late, had priced in a 9 basis points cut in June - that is, a cut isn't very likely - but a full 25 basis points at the Reserve Bank's July 26 OCR review.

However, Robin Clement at UBS New Zealand doesn't think the Reserve Bank will cut, partly because the currency's decline and the rash of fixed-rate mortgage cuts over the last couple of weeks means "there's been an easing of fairly significant magnitude anyway."

Peter Cavanaugh at Bancorp says the question the Reserve Bank will be asking is whether the European turmoil will affect New Zealand growth and inflation: "So far, it's only in the same league as an oil price spike."

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