4 Dec 2012

Reserve Bank expected to keep OCR on hold

12:03 am on 4 December 2012

The Reserve Bank is widely expected to keep the Official Cash Rate on hold when it makes its next decision on Thursday.

The benchmark interest rate has stood at 2.5% since March last year and economists are not expecting that to change.

Inflation was 0.8% in the three months to September, its lowest level in almost 13 years and below the central bank's agreed target range of 1 - 3%.

Low consumer confidence and high unemployment has translated into weak retail spending but Infometrics economist Matt Nolan says there are signs the economy is beginning to improve.

He says many of the surprises in terms of international conditions have been positive, the US is improving more quickly than expected and China and Japan are also improving.

In New Zealand, construction is finally picking up, and confidence looks to be firming, with more companies looking to hire and invest.

"When you've got all these positive indicators coming in together the Reserve Bank would be hesitant to start easing conditions on top of that. We would expect them to stay on hold and to very much give a similar path to interest rates that they had previously."

Mr Nolan says the bank will note that unemployment is higher than predicted, while inflation is a lot lower.

He believes there will be no change to the Official Cash Rate until the end of next year.