News

OCR stable . . . for now

[OCR Preview] Economists are confident the Reserve Bank won't move the Official Cash Rate off it's historical lows next week, but there is an emerging divergence of views about what will happen in the future now there is a new government in power.

Cameron Bagrie, ANZ chief economist

New Zealand’s top economists are singing from the same song sheet when it comes next week’s OCR announcement. All respondents in the TMM OCR Preview survey believed the OCR will remain at the record low 1.75%, but most say the next move will be up.

There is also a widely held belief that that RBNZ will raise its inflation forecast due to the low New Zealand dollar.

Annette Beacher from investment bank TD Securities predicts that the OCR will move upwards in the next year, but is set to steer a steady course for now.

When asked what impact the new government will have, she says says: “I am pretty much the only person out there saying this government is inflationary!”

“The RBNZ needs to respond to that, and sooner rather than later.”

Stephen Topliss, head researcher at BNZ, is in agreement.

“We should expect the inflation forecast to rise in the face of our currently weak currency, but it’s unsure whether this rise will be transitory or permanent,” he says.

Robin Clements, senior economist at UBS, sounded an unequivocal “no” at the prospect of OCR changes. He does expect lower growth, higher inflation forecasts, but no change in rate track at present.

Chief economist at Westpac, Dominick Stephens, is equally as sure of the OCR’s short-term, stability.

“The short-term inflation forecast will probably be higher, but we aren’t expecting material changes to the OCR forecast or the longer-run inflation forecast,” he says.

Barring a major international crisis, Zoe Wallis from Kiwibank believes that RBNZ will raise the OCR sometime next year. She beliefs that inflation will rise more sharply than predicted.

“We expect the RBNZ to lift its own inflation track in response to a lower NZ dollar and rising domestic capacity pressure,” she continues.

“As such, we also anticipate that the RBNZ will shift forward its OCR track to imply gradual interest rates hikes commencing from the start of 2019 - compared with mid 2019 previously.”

But the last word goes to ANZ chief economist Cameron Bagrie, whose short and sweet response sums up the general mood.

“The OCR has troughed in this cycle, and no change is expected next week.”

Most Read

Get TMM delivered to your inbox each week

Sign Up