Despite souring economic data at home and abroad, the Reserve Bank will not lower the official cash rate below 2.5 per cent next week, predicts Westpac chief economist Dominick Stephens.
Reserve Bank of New Zealand Governor Alan Bollard "must have endured grim reading" in his review of the economic situation ahead of next week's OCR decision and Monetary Policy Statement, Stephens said.
The European sovereign debt crisis is at a new level of danger, the price of Kiwi export commodities has slumped, and the domestic economy is recovering only slowly. Only the domestic housing market shows some hope, he said.
"This might, at first glance, seem like the sort of environment in which the Reserve Bank will reduce the OCR.
"We argue that it will not, for two very compelling reasons - monetary conditions have already eased, and the uncertain environment argues for maintaining flexibility."