By BRIAN FALLOW
The Reserve Bank has adopted a stance of watchful neutrality on the outlook for interest rates.
As widely expected it left the official cash rate unchanged at 6.5 per cent yesterday.
Offering a brief explanation, the Governor, Don Brash, took a "that was then, this is now" line towards his December view that a gradual further rise in interest rates would be needed this year.
"Since then the exchange rate has strengthened. Perhaps even more important, expectations for global growth this year have slowed appreciably.
"This falloff in expected growth has been most notable for the United States but is also a feature of the outlook for Australia and for much of Asia," Dr Brash said.
Economists' interpretations reflected a wide spread of views.
"Decidedly dovish," said the Bank of New Zealand's Craig Ebert. "Enough evidence will have accumulated by the March 14 monetary policy statement to justify an OCR [official cash rate] cut of 25 basis points, with a bias for further cuts before mid-year."
WestpacTrust chief economist Adrian Orr described the tone as noncommittal. "The acknowledged shift in the balance of risks matches our view that the tightening cycle is over," Mr Orr said. He is picking a 25 point cut in May.
Deutsche Bank's Darren Gibbs said: "We think the Reserve Bank is genuinely uncertain about its next policy move and will be watching the data closely over coming weeks ... "
ANZ Bank chief economist Bernard Hodgetts said yesterday's statement was less hawkish than he had expected.
"The bank is sidestepping important issues surrounding the medium-term inflation outlook, including the expected pace of growth in the domestic economy this year and the more generalised inflation pressures evident in the December quarter CPI."
ANZ still thinks Dr Brash's next move will be to raise rates, but probably not until May.
National Bank chief economist Brendan O'Donovan said: "Dr Brash's previous projected tightenings are, appropriately, completely off the agenda. The risks going forwards are stacking up towards lower interest rates. But it is too early to tell. ... core inflation looks like remaining stubbornly around the 2 per cent mark, so the only thing that will drive him to an easing is if the international [outlook] gets markedly worse."
The difficulty, Mr O'Donovan said, was that a convincing case could be made for two very different scenarios for the US.
One is that the US is going through the inevitable slowdown as the strong growth of the second half of 1999 and the first half of 2000 unwinds. But the Federal Reserve's prompt easing and the prospect of a hefty fiscal stimulus would see growth rebound strongly ...
The gloomier scenario starts from the fact that imbalances had built up in the US economy - a wide current-account deficit, low savings rates, inflated asset prices - and correcting such imbalances in other times and places has involved prolonged periods of low growth.
Mr O'Donovan said US analysts were forecasting a further 150 basis point cut in US interest rates. If that happened, he said, the Reserve Bank would have to match about half of it.
Brash adopting wait-and-see stance on rates
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