7 Dec 2015

Cut to interest rate expected this week

3:57 pm on 7 December 2015

The Reserve Bank has its last look at interest rates for the year this week, with a broad expectation that it will deliver a quarter percentage point rate cut.

Reserve Bank governor Graeme Wheeler.

Reserve Bank governor Graeme Wheeler Photo: RNZ / Diego Opatowski

That would take the Official Cash Rate to 2.5 percent.

Reserve Bank governor Graeme Wheeler has said that some further reduction in the cash rate would probably be needed to counter falling commodity prices, global uncertainty and help to bring inflation back to the mid-point of its target range.

Economists were overwhelmingly picking a cut this Thursday, although financial markets were evenly balanced about whether it would happen.

AMP Capital Investors chief economist Bevan Graham said the Reserve Bank of New Zealand (RBNZ) had been conditioning people to expect another rate cut, which he thought was justified, and it should get on with the job.

"I think conditions are supportive of another cut in interest rates," he said.

Bank of New Zealand head of research Stephen Toplis was resigned to another rate cut this week, but questioned whether an economy growing at 2 percent and better, with benign inflation, needed lower interest rates.

"In the current environment, the economy's actually ticking along quite nicely thank you," he said.

Stephen Toplis said if the RBNZ did cut rates, it should also make it clear that there would be a high hurdle to any further easing.

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