- All 26 economists see c.bank holding key rate at 1.75 pct
- Inflation has edged up to mid-point of RBNZ's target band
- RBNZ decision expected on Thursday, May 11
- For poll results click: reuter//realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=NZINTR%3DECI
New Zealand's central bank is all-but-certain to keep rates on hold at a record low of 1.75 percent at its review on Thursday, but investors and economists will be on the lookout for any signs it may move earlier to raise rates as inflation picks up.
All 26 economists polled by Reuters expect no change to the Reserve Bank of New Zealand's (RBNZ) official cash rate (OCR), which was lowered by 25 basis points to the current record low in November. [NZ/POLL]
Nearly all predicted that the rate will be kept steady this year.
On the face of it, an economy tracking along nicely and the news in March that inflation had finally hit the RBNZ's target mid-point for the first time in two years, should mean the central bank will be ready to hike, but the reality is more complicated.
"...Thursday's Monetary Policy Statement will address a challenge that the Reserve Bank hasn't faced in many year not how to return inflation to the target, but how to keep it there," said Westpac Bank economists in a research note.
In its last statement in March, the central bank reiterated that it would stay on hold for a "considerable" period of time, warning that the recovery in inflation could be temporary and there were growing international risks.
Governor Graeme Wheeler highlighted that growing global protectionism, led by U.S. President Donald Trump, was a major risk for New Zealand's small and open trade-dependent economy.
"Once again, the RBNZ needs to walk the tightrope of being encouraged by recent developments in inflation, but not so enthusiastic the market brings forward even further its expectations of an OCR hike," said ASB economist Daniel Snowden.
The central bank had indicated in March that rates could remain unchanged for as long as two years, with external rather than domestic factors determining the outlook. Some economists thought it might do-away with the mention of a timeframe in its next policy statement.
The central bank slashed rates seven times in the last two years, which worked to lift tepid inflation. New Zealand's consumer price index accelerated to a surprisingly brisk 2.2 percent in the first quarter, the highest in five years.
But some of that gain was due to temporary factors such as higher oil prices and a tax hike on alcohol and tobacco products.
Stripping out petrol, alcohol and cigarettes put annual inflation at a more modest 1.5 percent, though that was still comfortably within the RBNZ's target band of one to three percent.
