"When it comes to the OCR outlook, the RBNZ will attempt to find a way of clearly signalling a pause, while reaffirming the overarching message that the OCR will rise gradually over the coming years"
- Dominick Stephens, chief economist at Westpac Banking Corp.
The Reserve Bank of New Zealand is expected to raise the benchmark interest rate once again on July 24, lifting the cash rate a quarter point to 3.5%. However, future possible actions of the RBNZ Governor Graeme Wheeler have become a subject of considerable speculation, given dairy prices have continued to fall, inflation remains subdued and the housing market may not be getting as heated as feared. Market consensus suggest a pause in the cash rate hike after next week until the end of the year, while some economists see no further lift this year. It is projected that the rate will be raised to 3.75% in December, 4% by March and 4.25% by June next year. Being currently at 3.5%, the official cash rate will be more than 3 percentage points higher than central bank rates in the U.S., Japan and Europe, and 1 percentage point above Australia's, providing the New Zealand Dollar with what is known as a 'positive carry.' It is expected that the Reserve Bank Governor Graeme Wheeler will want to reinforce the message about the necessity to tighten monetary policy and bring the cash rate back to neutral, while at the same time pausing.
Meanwhile, the New Zealand Dollar fell as risk appetite wanes worldwide amid the crash of Malaysian passenger jet; nevertheless, the Kiwi's decline was limited by uncertainty about next week's RBNZ review.
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