Another interest rate cut looms


By Tony Field

Economists say the odds are increasing that the Reserve Bank might cut interest rates before the end of the month.

The New Zealand Institute of Economic Research's latest survey of businesses has found confidence is dropping. Slightly more businesses expect the economy to get worse over the next six months than expect it to improve.

That prompted the NZIER to predict the Reserve Bank will cut the Official Cash Rate to 2 percent.

Senior economist Christina Leung says: "The more downbeat mood amongst businesses suggests an increasing risk the Reserve Bank will choose to cut in April in a bid to stimulate the New Zealand economy."

The gloomy report saw the New Zealand dollar fall below 68 US cents yesterday, from 68.4 cents in the morning.

However the kiwi has staged a modest recovery this morning, rising by a third of a cent to just over 68 cents, by 7am.

That followed an increase in prices at the overnight GlobalDairy Trade auction.

The index rose 2.1 percent to an average price of US$2,188 ($NZ3,216).

New Zealand's key export commodity, whole milk powder, rose 1.5 percent. It is only the second price rise in the past seven auctions.

The NZIER's survey shows that manufacturers are increasingly concerned about the economy.

The Institute says: "A key driver of this gloominess is that firms have consistently had their expectations of a pick-up in sales dashed in reality. Their optimism is starting to wane firms now see weak demand ahead."

A net five percent of manufacturers expect to reduce staff over the coming months.

Hiring intentions are a leading indicator of where an economy is heading.

The survey found a net 6 percent of businesses expect an improvement in demand. That is the lowest level since early 2011.

Even the retail and services sectors, which performed well last year, expect a softening in sales.

The increasing pessimism of business managers contrasts with a report issued on Monday by Westpac McDermott Miller. It found growing optimism among workers, particularly in Auckland and Canterbury.


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