Reserve Bank should leave OCR alone until mid-2012, economists
The Reserve Bank should sit on its hands until the middle of next year, says the New Zealand Institute of Economic Research.
The Reserve Bank should sit on its hands until the middle of next year, says the New Zealand Institute of Economic Research.
Global uncertainty and a sluggish local recovery mean the central bank should keep the official cash rate (OCR) at its current level of 2.5% through to June next year.
GDP growth of 1.4% this year and 2.6% in 2012 are forecast "consistent with a slow and gradual economic recovery, with continued deleveraging," said principal economist Shamubeel Eaqub.
"The Reserve Bank should not raise interest rates while the global economy is so vulnerable and the New Zealand dollar is so high.
"Interest rate increases should be delivered cautiously, as most (83%) of mortgages are short term. Even a 1% point interest rate increase will raise the annual mortgage bill by $1.4b or 2.2% of annual retail spending."
The institute is particularly concerned about continued global economic uncertainty.
" Exports had been a key support to the economy. A renewed global slowdown, particularly without the buffer from Australia, will weigh on export prices and volumes. Tensions in global markets will also see the dollar remaining higher for longer, further weighing on exports."
Rob Hosking
Wed, 31 Aug 2011
Wed, 31 Aug 2011
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Reserve Bank should leave OCR alone until mid-2012, economists
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