Economists expect the Reserve Bank to cut its official cash rate by 25 basis points to 2.5 per cent at this Thursday's monetary policy statement, but the financial markets are not so sure.
The central bank, at its official cash rate review on October 29, hinted heavily that another rate cut was in store and most economists expect it to move at this Thursday's monetary policy statement. The Reserve Bank aims to contain annual inflation within a 1 to 3 per cent range, but the consumers price index has been well below the bottom end of the band for the last year or so.
In its last comment, the Reserve Bank said that to ensure future average CPI inflation settles near the middle of the target range, some further reduction in the official cash rate was likely.
But doubts have emerged of the ability of central banks to influence inflation through interest rates, which is why the markets are less than convinced that a cut will eventuate this week. "There is a growing realisation that lowering interest rates may not have much of an impact on getting inflation up anyway, and it has been notable that the Reserve Bank of Australia in recent weeks has taken that line quite strongly," said Stephen Toplis, Bank of NZ head of research.