- Most economists expect NZ rates to stay on hold
- Hot housing market complicating monetary policy outlook
- High NZ dollar adds to pressure for a possible cut
- Policy announcement due April 28
WELLINGTON, April 26 (Reuters) - New Zealand's central bank is expected to hold off pulling the trigger on an interest rate cut at its policy meeting this week as a heating housing market complicates an otherwise tepid inflationary outlook.
Seventeen of 23 economists polled by Reuters expect the Reserve Bank of New Zealand to keep rates on hold at a record low 2.25 percent on Thursday. Six are expecting it to cut the rate to 2.00 percent. [NZ/POLL]
"The RBNZ is facing an increasingly nuanced balancing act," said Westpac Bank Chief Economist Dominick Stephens.
The central bank continues to grapple with stiff external headwinds that have prompted the Bank of Japan and European Central Bank to adopt negative interest rates.
The Kiwi bank is struggling to re-ignite an economy hit by a slump in prices for its key dairy exports, weakening global demand and low inflation. However, it also remains leery of stoking an already hot housing market.
The central bank surprised markets in March when it cut interest rates by 25 basis points and signalled more easing to come to "ensure that future average inflation settles near the middle of the target range."
Inflation has been below the central bank's 1 percent to 3 percent target range since June 2014 and is currently running at 0.4 percent.
The weak inflation, coupled with the stubbornly high New Zealand dollar, puts pressure on the central bank to ease further.
The New Zealand dollar is currently 3.0 percent higher on a trade-weighed index basis than the central bank expected it to be in the June quarter, adding to the pressure on exporters and further curbing inflation.
"Developments since the March monetary policy statement suggest that a rate cut sooner rather than later is the best policy path," said Zoe Wallis, senior economist at state-owned Kiwibank.
She notes, however, the housing market is "complicating" the outlook.
The latest monthly QV House Price Index shows that nationwide residential property values for March have increased 11.4% over the past year and are now 35 percent above a previous market peak in late 2007. In Auckland, house prices increased 16.9 percent over the year and are 70.4 percent higher than the previous peak.
ASB Bank Chief Economist Nick Tuffley is expecting the bank to stay on hold Thursday but said it is a "coin toss."
The decision will "largely boil down to whether the RBNZ is more concerned about a higher than expected NZ dollar, or a possible resurgence in the Auckland housing market and clear lifts elsewhere," said Tuffley.
