23 Apr 2012

Reserve Bank expected to keep rates on hold

6:57 am on 23 April 2012

Economists say there's little need for interest rate increases, because of the high New Zealand dollar, tame inflation and falling commodity prices.

Most economists expect the Reserve Bank will leave the Official Cash Rate unchanged at its record low of 2.5% at its third review of the year on Thursday.

Deutsche Bank's chief economist Darren Gibbs says the central bank was reasonably dovish in its last review in March, and he's expecting a similar, or perhaps even slightly more sombre tone on inflation this time.

He says a GDP report on the last quarter of last year was softer than expected, last week's CPI was below what was expected, the exchange rate is firm and commodity prices are falling.

"Its a mix which I think means that the OCR will be on hold quite possibly for the whole of this year."

He says there may be a rate hike at the very end of the year, but that will rely on either the currency weakening or commodity prices rebounding as global conditions stabilise.

Mr Gibbs says even when rates do increase they are likely to do so at a very modest pace, so rapidly rising mortgage rates are unlikely any time soon.