25 Jan 2011

No early OCR rise expected

6:44 am on 25 January 2011

The lacklustre economy has sent many economists scrambling to revise their forecasts, with most now expecting the Reserve Bank to wait until at least the middle of the year before it raises interest rates again.

The official cash rate has been held at 3% since July.

The central bank will review the official cash rate on Thursday, but the decision is expected to be a non-event as the cost of borrowing is again kept on hold.

At the end of last year most economists expected the next rise to come in March, but as economy continues to underwhelm, a poll by Reuters this month found only one out of 20 economists questioned now hold that view.

Instead, three quarters believe the next hike will come in June or later, and a quarter pick the central bank will wait until at least September.

ASB is the latest bank to have moved to the September camp, joining Deutsche Bank, and Westpact and Goldman Sachs in their view.

The senior economist at ASB, Jane Turner says the economic recovery has been weaker than the Reserve Bank predicted, and will be looking for proof that the economy is improving before raising rates.

But ANZ's head of markets and strategy, Khoon Goh, believes the economic recovery will start to pick up over the next few months, prompting the Reserve Bank to lift interest rates earlier, perhaps as early as June.

However, he says, if the recovery is more sluggish than expected the bank has scope to delay a rise until September.