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Business Weekly Economic Report
Bollard's conundrum
Monday, 08 June 2009
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We expect the RBNZ will keep the Official Cash Rate (OCR) on hold at 2.5% on Thursday 11th of June. The RBNZ is very close to the end of its easing cycle: its reluctance to cut the OCR below 2.0% leaves only 50 basis points of potential rate cuts up its sleeve.
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In looking at the economic environment, the RBNZ will be very aware of the “green shoots” upon which markets have become fixated of late. But even if the RBNZ is comforted by the green shoots, it is unlikely to be comfortable with current levels of the NZ dollar and longer-term fixed interest rates.
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The issue for the upcoming decision is that, even if the RBNZ does want to ease monetary conditions further, cutting the OCR is unlikely to make much difference at this point in time. Current market forces are likely to limit the impact of an OCR cut at the minute: there may be better opportunities in the future if the RBNZ still wants to have some impact.
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Report Prepared by:
Jane Turner
ASB Economist
Phone: +64 9 374 8185
Fax: +64 9 302 0992
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