Last rate review looms before new bank boss arrives

Acting Reserve Bank Governor Grant Spencer will make his final official cash rate review next week. Picture / Mark Mitchell

Economists see no prospect of acting Reserve Bank governor Grant Spencer lifting the official cash rate in his final review next week and do not expect him to deviate from the line that rates are on hold for the foreseeable future given the lack of inflation.

All 13 economists polled by Bloomberg expect the OCR to stay at a record low 1.75 per cent next Thursday. While a few see the risk of a rate hike this year, the median is for the bank to stay on hold until at least 2019.

In February, the bank kept the benchmark rate unchanged and reiterated "monetary policy will remain accommodative for a considerable period".

Its forecasts continued to signal rates won't lift until the latter half of next year.

New Zealand's consumer price index rose 1.6 per cent in calendar 2017. The Reserve Bank is mandated with keeping annual inflation between 1-and-3 per cent over the medium term with a focus on the mid-point.

However, inflation has remained stubbornly weak, only pushing up to a 2.2 per cent annual pace briefly in the 2017 March quarter before dipping back to 1.7 per cent in the June quarter and 1.9 per cent in the September quarter.

Against that backdrop, "the RBNZ will retain a clear, consistent message", said ANZ Bank New Zealand senior economist Liz Kendall.

"A broad spirit of cautiousness (particularly with regard to the inflation outlook) has underpinned the RBNZ's assessments for some time. And we expect that to continue for some time yet. The RBNZ is not expecting to tighten monetary policy until the second half of 2019 and we agree with that assessment," Kendall said.

Capital Economics Australia and New Zealand economist Kate Hickie said she expected "Grant Spencer will end his short tenure as governor without much fanfare by keeping rates on hold at 1.75 per cent and by repeating in the accompanying statement that he expects 'monetary policy will remain accommodative for a considerable period'".

Given the lack of expected fireworks, economists say the bigger development for markets will be the changing of the guard at the RBNZ when Adrian Orr takes over the helm on March 27.

Thursday's "official cash rate review is likely to be overshadowed by market perceptions around the incoming governor Adrian Orr, and details of the new policy targets agreement once it's released (possibly later next week)," said ASB Bank economists in a note.

ANZ's Kendall did not expect any major changes in the RBNZ's views, at least until Orr gets his feet well under his desk.

"But over time we will be looking to understand how the RBNZ operates under his watch."