Reserve Bank expected to leave rates on hold

The debate now is centred around what tone Bollard chooses to adopt.

Tony Alexander, chief economist at Bank of New Zealand, expects he will revert to a hawkish tone after surprising the market at his last official cash rate (OCR) review on October 28 when he signalled rates were unlikely to rise further. The OCR, which has the most influence in determining variable mortgage rates, currently stands at 6.5%.

"We expect to see the Reserve Bank acknowledge that the economy and inflationary pressures are still surprising on the top side and that, unless we also continue to get upside surprises on the exchange rate, this leaves open the possibility of another rise in the cash rate," Alexander says.

The New Zealand dollar rose one cent to 72 US cents last week and also rose two cents to 92 Australian cents.

Macquarie Bank’s economists rate the chances the OCR will be unchanged at 95%.

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