14 Sep 2012

Next interest rate move could be down - economist

7:14 am on 14 September 2012

An economist says there is still a risk of a cut in the Official Cash Rate and is not convinced recent signs of global economic stabilisation will continue.

The Reserve Bank on Thursday kept the OCR unchanged at 2.5% and in its statement said the Chinese economy had softened and there was still a risk of significant deterioration in Europe.

While it expects moderate growth in New Zealand's economy, it believes this could be offset by tighter Government spending and a high exchange rate.

ANZ chief economist Cameron Bagrie says the global recovery is going to be a drawn out slog and he does not expect the next hike in the OCR to be until 2014.

He says there is still a risk that the next move in interest rates could be down in the next six months, rather than up.

Mr Bagrie says that will be dictated by the global situation.

However there would also have to be increase in the New Zealand unemployment rate, and the housing market would have to give up steam, before there was any rate cut.

He says what happens in the Australian economy could also affect New Zealand.

Mr Bagrie says there have been a few cracks in the Australian economy in terms of the mining sector, but economists are predicting it will hold together.

"The markets are saying at the moment that the Reserve Bank of Australia is going to be cutting rates over 2013.

"Now if the Reserve Bank of Australia is cutting rates aggressively over 2013 it's hard to see the RBNZ hiking rates, in fact it's probably more likely the Reserve Bank could be cutting rates as well".