The Government's failure to curb the housing crisis meant the Reserve Bank could not lower interest rates, despite inflation being at 15-year lows, Labour Party finance spokesman Grant Robertson said yesterday.
Reserve Bank Governor Graeme Wheeler left the official cash rate unchanged at 3.5%, as expected.
But the chances of a cut to 3% before the end of the year are looking increasingly likely.
Mr Robertson said inflation at close to zero was below the Reserve Bank's target range of 1% to 3% and the economy had deflated in the past six months.
''Yet we have among the highest interest rates in the developed world. As the Reserve Bank had repeatedly pointed out, the biggest reason for that is the Government's refusal to tackle the housing crisis,'' he said.
In his OCR statement, Mr Wheeler said the timing of future adjustments in the OCR would depend on how inflationary pressures evolved in both the non-traded and traded sectors.
It would be appropriate to lower the OCR if demand weakened and wage and price-setting outcomes settled at levels lower than was consistent with the inflation target.
BNZ head of research Stephen Toplis said the central bank had confirmed its bias was towards easing the cash rate.
Not only might it now ''consider'' lowering interest rates, it asserted it would be appropriate to lower the OCR if demand weakened.
''The direction of intent is clear but the hurdle, in our view, remains high. While we acknowledge the growing risk of a rate reduction, we stick, for now, with our call rates will not decline."
However, Westpac chief economist Dominick Stephens had a different view.
''... there is a 40% chance of two or more [OCR] cuts over the coming year. If cuts do occur, they would most likely occur late in the year,'' he said.
• Finance Minister Bill English will deliver a speech, presumably on the May 21 Budget, at 12.30pm today.
At a glance
• OCR unchanged at 3.5%
• Chance of an easing strengthens
• Fonterra dairy price reduction supports rate cut
• The hurdles to a cut still remain high
• Next week's Labour Cost Index is the one to watch closely
