23 Jul 2014

OCR rise not so certain, says Harbour

6:44 am on 23 July 2014

Harbour Asset Management is bucking conventional wisdom by calling the Reserve Bank's decision on whether to raise interest rates on Thursday a 50-50 call.

Most economists are expecting the central bank will raise the Official Cash Rate to 3.5 percent on Thursday, which would be its fourth hike this year from the record low of 2.5 percent.

Harbour portfolio manager Mark Brown said the data flow since the central bank's June monetary policy statement has generally been weaker than expected.

He said the data since June included a fall in the Fonterra wholesale milk price and the log commodity price.

At the same time the currency had gone higher, which Mr Brown said was not how it would be expected to react to weakening in the terms of trade

Reserve Bank building.

Most economists expect the Reserve Bank to raise the OCR to 3.5 percent on Thursday. Photo: RNZ

He said business confidence had also fallen off and the housing market has been a little softer. Mr Brown said there had also been some offsetting stronger data, such as strong migration numbers.

"But when we put it together the package of data that's come out would suggest that the bank doesn't need to hike as much as they were suggesting was likely in June."

Mr Brown said the facts have changed and so the call is a little different in terms of what the bank will be likely to do.