NZ central bank set to hold rates at record low, strike cautious tone

* RBNZ set to keep rates steady at 1.75 pct

* Most economists expect rates to stay on hold until Q3 2019

* Strong Q2 GDP in spotlight, but risks to outlook remain - economists

By Charlotte Greenfield

WELLINGTON, Sept 24 (Reuters) - New Zealand's central bank is all but certain to hold rates steady and reinforce its dovish stance on policy on Thursday, remaining wary of stubbornly low inflation and the risks of an economic slowdown.

Concerns over a slump in business confidence, easing migration and a cooling housing market have kept policy makers cautious even as data last week showed the New Zealand economy has picked up the pace from recent quarters.

At its policy review on Thursday, the Reserve Bank of New Zealand (RBNZ) is expected to hold rates at a record-low 1.75 percent, where it has remained since November 2016, according to all 18 economists polled by Reuters.

The central bank adopted a more dovish tone at its last meeting in August, warning it would shift its bias towards a rate cut if growth fell short of its expectations.

Businesses are also concerned about the centre-left government's policies as well as a simmering international trade war between the United States and China - New Zealand's biggest export market.

All the same, economists said last week's data showing a surprise 1 percent quarterly jump in gross domestic product in the second quarter - double the RBNZ's predicted pace - meant policy makers will retain a 'wait and see' stance, possibly for more than a year.

"With GDP growth surprising to the upside of the RBNZ's forecasts, the chance of an OCR cut in the near future seems distant," said Dominick Stephens, chief economist at Westpac Bank.

No economists polled by Reuters were forecasting a cut in the next five quarters, but all but one expected the bank to hold rates until the end of the third quarter of 2019.

A third of the 18 polled thought it would lift rates by end-2019.

On the whole, economists expect the RBNZ to remain cautious given worries about low business morale and benign inflation, which is running at an annual pace of 1.6 percent, below the midpoint of the bank's 2 percent target.

Anecdotally, firms have complained about a recent 5 percent hike in the minimum wage and have raised fears that international investors would be spooked by a ban on many foreign homebuyers and on new offshore oil and gas exploration permits.

"The RBNZ will continue to dangle the rate cut carrot so as to keep monetary conditions accommodative and the NZD low," said Nick Tuffley, chief economist at ASB Bank.

(Reporting by Charlotte Greenfield Editing by Shri Navaratnam)

2018-09-24 03:32:21

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