Economy could take rate cut - shadow board

Last updated 07:51 04/12/2012

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The Reserve Bank should hold the official cash rate at 2.5 per cent this week, but the NZIER shadow board recommends a cut rather than an increase, should it move.

The board placed about a 40 per cent weight on lower interest rates being appropriate, compared with 56 per cent for leaving rates on hold.

New Reserve Bank governor Graeme Wheeler is widely expected by bank economists to leave rates unchanged yet again at Thursday's official cash rate announcement. If so, it would be the 14th review without a change.

NZIER's head of public good research, Kirdan Lees, said recent domestic figures showed a mixed picture.

Unemployment was at a 13-year high of 7.3 per cent, while inflation is down to just 0.8 per cent, slightly below the bottom of the Reserve Bank's target band.

Recent retail sales figures have also been disappointing, down 0.4 per cent in the September quarter.

The economy was expected to grow as little as 0.2 per cent in the September quarter.

Lees said high unemployment and low inflation suggested ample room for the economy to grow without strong economy-wide price rises.

But he said there were pockets of price pressures in the Auckland housing market and the Canterbury building sector as the Christchurch rebuild gathered steam.

The NZIER shadow board is independent of the central bank and aims to promote debate about interest rate decisions. It includes bank and academic economists as well as a representative from NZIER, among its nine members.

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- © Fairfax NZ News

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