New RBNZ governor not likely to wheel out rate cut

Economists don’t expect anything drastic from the new Reserve Bank governor at his first official cash rate announcement on Thursday.

Wednesday, October 24th 2012, 6:38AM

by Susan Edmunds

Of the 11 economists polled by www.mortgagerates.co.nz, all expect the rate to be kept unchanged at 2.5%.

It had been suggested that lower than expected inflation figures might prompt a reduction in the rate but most of the economists said that the probability of Graeme Wheeler keeping the rate on hold was 90% or more.

The exceptions were Paul Bloxham of HSBC, who said the chance was only 60% and Matt Sturmer, of Forsyth Barr, who said it was 80%. Mark Lister, of Craigs Investment Partners, was the only economist 100% sure that the rate would remain unchanged on Thursday.

All of the economists surveyed expected the next movement of the OCR to be up 25 basis points, to 2.75%, although Chris Green, of FNZC said there was a 5% chance of a 25 basis point cut this time.

Lister said he couldn’t see a change happening this week because the governor is new in his role and not much has changed since the last OCR announcement.

“Inflation is relatively benign and there’s a bit of stability in the global market. It’s definitely not going up. You could build an argument for them slightly reducing it but I think with all the things America has on its plate over the rest of the year the new governor would take the view that even if he did think there was a case for reducing it, he’ll watch and wait and keep some power dry in case he needs it later in the year.”

Sturmer said there was an element of uncertainty because this will be Wheeler’s first OCR announcement. “He may want to put his mark on things but these guys generally like to follow the course of action set by others.”

Sturmer said if the rate were to move this week, it could only be down. “If he does have to use a cut he probably wants to do it when it really matters, that’s probably not now.”

When the rate will start to creep up is not clear cut. Helen Kevans, of JP Morgan, expects to see movement in the first quarter of next year, as does Robin Clements of UBS New Zealand. ASB and

FNZC expect change in September next year, while ANZ does not expect the rate to rise until March 2014.

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