OCR projections replace 90-day bank bill rate

The Reserve Bank today announced that, from November, it will be publishing projections for the OCR, rather than for the 90-day bank bill rate, in its quarterly MPS.

The projections will continue to be on a smoothed quarterly average basis.

“Historically, the 90-day bank bill rate has provided a good gauge for the stance of monetary policy because it typically moves in a consistent manner with the OCR,” the Reserve bank said.

“Variations in the past have generally been temporary and experienced during periods of financial stress.

“More recently, regulatory changes in global financial markets have also been altering the relationship between the 90-day bank bill rate and OCR, complicating the Bank’s communication of the monetary policy outlook.”

The Reserve Bank now sees publishing OCR projections as a more transparent way of presenting the expected policy actions needed to achieve its inflation target.

This change has no bearing on the way that the Bank conducts monetary policy, the Reserve Bank said.

“As with previous 90-day rate forecasts, projections for the OCR are conditional on the Bank’s assessment of current economic conditions and assumptions about the future evolution of the New Zealand economy.”

ASB senior economist Jane Turner said the change will give greater clarity to Reserve Bank communications.

There has recently been an increase in the margins between OCR expectations and the 90-day rate, largely due to increased global uncertainties, she said.

“This increases the levels of uncertainty when projecting the 90-day rate and leads to market speculation.

“So the change to change to OCR projections makes for a clearer path of communication for what they expect to happen and will help to cut down on speculation.”

While it will likely be business as usual, the change will be helpful going forward as it makes for much greater transparency, Turner said.

NZIER senior economist Christina Leung agreed.

She said the Reserve Bank’s decision to publish OCR projections instead of the 90-day track makes sense given the changes in funding costs.

“Ultimately, the Bank’s decision is around what to do with the OCR, so it’s appropriate that’s what it communicates.

“It allows it to be more transparent, and leaves it up to the markets to interpret what it means for market rates given funding costs.”