The Reserve Bank is unlikely to lift its official cash rate
(OCR) before December, but market observers will be carefully
watching the tone of the statement to be released on Thursday
by bank governor Alan Bollard.
In his December statement, Dr Bollard incorporated hefty cuts
to the global and local economic outlooks.
"There is very little to add from the previous statement,
which was reasonably open-ended in terms of the policy
outlook," ASB chief economist Nick Tuffley said.
"We expect the Reserve Bank will keep Thursday's statement
brief and continue to keep its options open."
Despite five proposals and 15 summits among the European
leaders since the first quarter of 2010, there was little
sign yet of a clear resolution to their economic problems, he
said.
The recent downgrade by ratings agency Standard & Poor's
of nine European sovereigns highlighted the continued
challenges faced by the region.
Adding to the uncertainty were various elections scheduled to
be held across the euro zone during the first half of the
year, including the French presidential election in April, Mr
Tuffley said.
Recent activity indicators had been encouraging, especially
in the United States. Although household spending remained
weak, there were signs of a turnaround in the household
sector, with the recent improvement in the US labour market.
Robust Chinese economic data had also quelled market fears of
a global slowdown.
"For now, the global growth outlook is not as weak as the
Reserve Bank forecast at the December Monetary Policy
Statement," Mr Tuffley said.
Domestically, the recovery was continuing at a gradual pace.
Business confidence had eased in light of the uncertainty in
offshore markets, but that was largely expected.
Economic growth was broadly in line with the Reserve Bank's
expectations. Post-earthquake reconstruction was expected to
provide a boost to the economy later in the year, but further
quakes in Christchurch in December and January could check
the rebuilding process, Mr Tuffley said.
"With current inflation pressures subdued, and considerable
downside risks to growth, the Reserve Bank has no urgency to
increase the OCR before December 2012," he said.
dene.mackenzie@odt.co.nz
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