Low inflation to delay RBNZ hike

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ON HOLD: Low inflation means the RBNZ is likely to hold rates for longer.

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The Reserve Bank will delay its first interest rate rise until July next year, according to Westpac Bank economists.

Westpac earlier forecast the central bank to make its move in March next year, but has just shifted that out another quarter, with inflation likely to remain low until the middle of next year.

Figures out earlier this week showed lower than expected inflation of just 1 per cent for the year to June, at the bottom end of the Reserve Bank's target band.

The Reserve Bank is due to review the official cash rate next week on July 26, with most economists expecting rates to be held and kept lower for longer.

Westpac chief economist Dominick Stephens said he expected the OCR to remain unchanged at 2.5 per cent next week, but with no hint of a rate cut.

Rates would not be cut because there had already been a "material easing" with cuts to fixed mortgage rates in June and July, and in June the central bank made it clear it was not considering a cut.

So even though the inflation outlook had eased since June, it had not dropped enough to back off the central bank's position established "so firmly" just six weeks ago, Stephens said.

- © Fairfax NZ News