Wheeler's speech will be watched for hints of rate cuts

Reserve Bank Governor Graeme Wheeler (Getty)
Reserve Bank Governor Graeme Wheeler (Getty)

Reserve Bank Governor Graeme Wheeler could provide more clues tomorrow about the possible pace of future interest rate cuts.

He will deliver his first major speech of the year in Christchurch to the Canterbury Employers' Chamber of Commerce.

Last week the Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate at 2.5 percent. But the markets expect at least one rate cut this year of 25 basis points, or 0.25 percent. Some economists believe the OCR will be lowered to 2 percent by the end of the year.

That's because the plunging global oil price is helping to keep inflation below the RBNZ's target of around 2 percent (the midpoint of its target inflation range of 1 to 3 percent over the medium term).

Mr Wheeler's speech will be delivered just hours after the release of the latest Global Dairy Trade auction results and the December quarter employment numbers.

It will also follow an announcement this afternoon from the Reserve Bank of Australia. The RBA is expected to hold its key rate at 2 percent for the ninth month in a row. But as with Graeme Wheeler's speech, the focus today will be on what hints RBA Governor Glenn Stevens offers about possible future Australian rate cuts.

Both central banks will be pondering the latest statistics from China that came out yesterday, showing its manufacturing sector is continuing to slow. China's official growth figure is 6.9 percent, although there are plenty of fund managers and investors who are sceptical about the official numbers.

Graeme Wheeler's speech is titled "The Global Economy, New Zealand's Economic Outlook, and the Policy Targets Agreement". Don't let that rather weighty title put you off -- this will be an opportunity for Mr Wheeler to remind people that just because inflation is weak right now, it does not mean the Bank has to rush to act.

BNZ economist Doug Steel says "we think the Governor will give a reminder and highlight that the Policy Targets Agreement allows for actual CPI to vary around the medium term target for a host of reasons, such that low headline CPI inflation need not necessarily invoke a policy response."

He says: "We would expect the key policy takeaways from the speech to be same as the OCR Review: a strong easing bias but with no sense of urgency to act on it."

Whatever Mr Wheeler says, there will be a reaction on the currency markets. At 7am today, the Kiwi was trading at 65.07 US cents and 91.88 Australian cents.

Newshub.

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