The Reserve Bank yesterday copped some flak from Bank of New Zealand economists, who called part of the central bank's statement on the official cash rate ''weasel words''.
Reserve Bank governor Graham Wheeler kept the official cash rate unchanged at 2.5%, as usual adding the status quo would be maintained until the end of the year.
BNZ head of research Stephen Toplis noted the Reserve Bank produced a scenario which showed what would happen to the cash rate if the currency proved stronger than the central bank had assumed.
The scenario showed that, all other things being equal, a currency that was persistently 2% higher than forecast would result in the cash rate falling 1%.
''If we then invert this and assume the currency stays where it is now for the next 12 months, then this would mean the cash rate should be 4.5% by June next year.
''No-one believes this will happen, but it is a far cry from the first rate hike next September [2014] quarter the bank currently has in its forecasts.''
The Reserve Bank tended to get a ''bit grumpy'' when the BNZ highlighted its third-quarter rate hike instead of deferring to its statement it expected to keep the OCR unchanged until the end of the year, Mr Toplis said.
But a 2014 third-quarter rise was firmly implied by the published interest rate track, so he had to take it at face value.
''And it's not inconsistent with the weasel words anyway.''
The BNZ believed the dollar would bounce off its current lows, but it still had a way to go to get to the trade-weighted index (TWI) of 77.4, which the Reserve Bank assumed it would not for the next 12 months.
The TWI (a basket of currencies of New Zealand's major trading partners) yesterday was 74.
The currency was, and would be for some time, the major point of focus when watching the Reserve Bank, Mr Toplis said.
But there were other developments that suggested the Reserve Bank might be forced to lift rates earlier than it suggested.
While the BNZ still forecast the first rate hike would be in March next year, it was not inconceivable the OCR could move to 3% by the end of the year if the dollar fell further.
''Ironically, the latest market reaction was in foreign exchange, where the dollar initially lost almost half a cent against its US counterpart, though it's now clawing some of that back,'' Mr Toplis said.
