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Some signs Reserve Bank a little happier

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Fuseworks Media
Fuseworks Media
Reserve Bank.jpg
Reserve Bank.jpg

The Reserve Bank left its benchmark interest rate unchange, as it waits for a "more robust" recovery, but some economists are already picking up indications of a little more perkiness in the central bank's outlook.

Keeping the official cash rate at 3 percent, Reserve Bank Governor Alan Bollard said the outlook for the New Zealand economy remained consistent with projections underlying the Reserve Bank's December monetary policy statement.

While noting weak growth and retail data, Dr Bollard also said forward indicators of activity had firmed somewhat, trading partner activity continued to expand, and export commodity prices rose further.

Imports of capital equipment were up, and there were tentative signs that housing market activity had stabilised after trending lower for some months.

ASB economist Nick Tuffley said the Reserve Bank's confidence in economic recovery appeared to have lifted since December, due to stronger forward-looking indicators.

The central bank had noted a pick-up in business confidence and the recent surge in imports of capital equipment.

"This contrasts to a more cautious tone on the investment indicators in December," Mr Tuffley said.

"The statement did accentuate the signs that the economy is returning to growth after the unexpected soft patch in the middle parts of last year, and that the external environment remains supportive of recovery (even as household demand remains fragile)."

Mr Tuffley doubted the Reserve Bank would receive confirmation of more firm evidence of sustained recovery until the middle of the year at the earliest. ASB continued to expect the OCR would not rise until September.

Deutsche Bank chief economist Darren Gibbs said Dr Bollard's short statement today had been a touch less dovish than the market expected.

While the Reserve Bank acknowledged that domestic activity had been weaker than expected through the second half of 2010, that had not tempered its assessment of the outlook for 2011 and beyond.

If anything, the Reserve Bank seemed slightly more upbeat, Mr Gibbs said.

"In short, in our view the RBNZ seems to be very comfortably on hold, with no inclination to reverse last year's rate hikes in reaction to disappointments thus far nor any immediate inclination to raise the OCR further."

Along with ASB, Deutsche Bank expects the first rate hike to be in September.

ANZ chief economist Cameron Bagrie and head of market economics and strategy Khoon Goh said the tone of Dr Bollard's statement today had been similar to the Reserve Bank's stance in December, "though less downbeat relative to what the market was expecting".

The ANZ economists compared Dr Bollard's mention today of "tentative signs" the housing market had stabilised, with the Reserve Bank's comments in December that it was expecting house prices to "decline a little further".

ANZ expects a mid-year start to the tightening cycle, based on a "less sanguine" view on inflation, with economists highlighting food and petrol prices, and signs of more robust growth emerging from the second quarter.

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