‘OCR on hold for long time’ message expected

Dominick Stephens
Dominick Stephens
The Reserve Bank is expected this week to  repeat its main message of the official cash rate remaining on hold for a long time.

The timing and direction of the next move will depend on how the economy evolves.

Markets are fixated on whether the Reserve  Bank will repeat the words "up or down" used in its last policy guidance paragraph.

Westpac chief economist Dominick Stephens says that is a red herring.

"The Reserve Bank may well choose different words to express its on hold stance, and may even choose words other than ‘up or down’. This will not necessarily constitute a signal the OCR outlook has changed."

The Reserve Bank was trying to avoid formulaic communications, he said.

It wanted markets to read each statement individually, rather than making side-by-side comparisons between the exact wording of  two statements.

Unlike most central banks, the Reserve Bank might change the wording of its policy guidance paragraph, even if its views had not changed, Mr Stephens said.

Markets would need to be cautious about knee-jerk reactions when the statement was released. It was easy to imagine a scenario where the words "up or down" were excluded and markets reacted strongly only for that reaction to reverse later when analysts realised the central bank was firmly on hold.

The Reserve Bank’s statement was likely to carry a slightly more hawkish tone than the May Monetary Policy Statement.

Most likely, the tone would come through in the details being discussed in the body of the press release, he said.

The key message had been inflation was currently lower than the bank would like but strong economic growth was set to push inflation up to 2%, in time.

Meanwhile, employment was seen as being in line with the "maximum sustainable level".

The Reserve Bank had concluded keeping the OCR at the current level of 1.75% for a long time was the best course.

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