Alan Bollard's upcoming departure from the Reserve Bank means he will give little direction on interest rate movements this week, although the prospect of cuts next year is building.
After 10 years as Reserve Bank governor, Bollard steps down from the job later this month, with Thursday's monetary policy statement (MPS) release providing a swan song.
Economists widely expect that not only will interest rates be left on hold this week, but that Bollard will try to avoid giving direction on future moves, to avoid putting pressure on incoming governor Graeme Wheeler.
In any case, economists said comments from Bollard would probably be overlooked.
"Any nuances in the bank's commentary will most likely be ignored in any case," Deutsche Bank's Darren Gibbs said.
The chance that the official cash rate (OCR) could be cut from its current record low of 2.5 per cent still appears to be building, with the timing of any increases pushed further into the future.
A poll by the Wall Street Journal last week gave a 25 per cent chance of a rate cut during the next year, with most picking no change in interest rates until midway through next year.
ANZ-National Bank, New Zealand's largest lender, has pushed out the timing of the first rise in the OCR to 2014.
Chief economist Cameron Bagrie put the chance of a rate cut during the next 12 months at 30 per cent, with concerns about the global economy getting closer to home.
"We know the European challenges, we know the US situation and there have always been question marks over the China story," Bagrie said.
"But now the concerns are coming much closer to home. The China questions are starting to hit Australia, our largest trading partner."
Last week iron ore prices - one of Australia largest exports - hit a three-year low, raising fears of an end to the country's mining boom.
Bagrie said while the New Zealand dollar had been overvalued against the US dollar for a long time, the gap to the Australian dollar had remained steady, helping exporters remain competitive. "That crutch may disappear if the Australian economy doesn't hold up.
"It looks like the Reserve Bank of Australia are going to be cutting interest rates before the end of the year," which would see the New Zealand dollar rise against the Australian currency, Bagrie said.
That increased the risk of an OCR cut. "The risk profile has gone up a gear, because the fragilities are that much closer to home."
Westpac economist Michael Gordon said April's MPS "grizzled" about the strength of the dollar, prompting economists to discuss the prospect of rate cuts, but the RBNZ itself had talked down the chance.
Gordon said that aside from Bollard's departure there was likely to be no clear direction on interest rates, with the outlook continuing to be one of modest growth at home, with risks overseas.
A bland statement from Bollard would give Wheeler an open hand, with the last MPS pointing to no rate increases until the middle of next year and "virtually nothing" in terms of increases beyond that.
"It's not as though they're coming from a starting point of a particularly strong stance anyway," Gordon said.
THE GOVERNOR'S WORD
Reserve Bank governor Alan Bollard will make his 80th and final official cash rate decision on Thursday.
He steps down later this month. It is widely expected that the decision will be "no change", the 54th time Bollard has left rates on hold, and the 12th in a row.
Under his reign there have been 11 cuts and 15 hikes. Inheriting an OCR of 5.75 per cent, Bollard eventually raised it to an all-time high of 8.25 per cent in July 2007, where it remained for almost a year. In 2008 and 2009, as the economy slipped into recession, there were seven consecutive rate cuts, to an all-time low of 2.5 per cent.
Bollard raised the OCR twice in early 2010 on signs that the economy was improving.
After the Christchurch Earthquake, Prime Minister John Key told Bloomberg he would "certainly welcome" a 0.5 per cent interest rate cut.
Bollard delivered, and the OCR has remained at 2.5 per cent since.
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