Cash rate expected to stay unchanged

The Reserve Bank is expected to keep the interest-driving official cash rate (OCR) at its record low 1.75% on Wednesday and some are picking it may be left unchanged as far out as early 2021.

ASB chief economist Nick Tuffley said his core view was that the Reserve Bank would hold the OCR at 1.75% until early 2021, the balance of risks tilting towards a lowering of the OCR.

"The risk of an OCR cut remains, but for now we are sticking to our call for the OCR to remain on hold through till early 2021," Mr Tuffley said.

A lot has gone on since the Reserve Bank delivered its February monetary policy statement six weeks ago, he said.

Concerns had grown over the health of the global economy, global central banks had become more dovish, the tenor of domestic and global data had waned and the domestic mood was sombre, following the terrorist attacks in Christchurch.

"At this time there is the clear need for government policy institutions to stay on message to provide continuity and reassurance," Mr Tuffley said.

While the Reserve Bank may this week acknowledge that risks have shifted further towards the negative, the economic outlook "remains reasonable", Mr Tuffley said.

"There's time for the Reserve Bank to wait and see how forthcoming data and events will unfold before changing its policy stance or OCR settings," he said.

Westpac chief economist Dominick Stephens said the Reserve Bank was likely to repeat its key messages from February, including that the OCR would be on hold through 2019 and 2020 and the next move could be up or down.

"Recent data has been mixed, and hasn't created any strong basis for shifting the the OCR outlook one way of the other," he said.

"The main reason for the Reserve Bank's dovish tilt at the time was concern about the global economic outlook, which was weakening."

The central bank's take on the domestic economy was "upbeat" and it emphasised capacity pressures were emerging, that the economy was expected to pick up in 2019, supported by fiscal stimulus, and that core inflation was expected to rise.

The bank was unlikely to have altered its views since February, given that economic developments since that time have been mixed, Mr Stephens said.

"A few elements of the domestic economy have been weaker than the Reserve Bank anticipated," he said.

House sales data had been weak recently, which might cause the bank to lower its house price forecast a bit, and GDP [gross domestic product] data in the December quarter was a touch weaker than the bank's previous forecast.

"But overall, the Reserve Bank can still credibly stick to the view that the economy is set to pick up this year, especially in light of very strong consumer spending and building consent numbers coming through recently," Mr Stephens said.

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