New Zealand economists divided over OCR

Leading economists at New Zealand’s biggest banks have played down the chances of an OCR rate rise next month — with one bank claiming a cut is more likely this year

Economists at Westpac, BNZ, ANZ, and Kiwibank predict the Reserve Bank will hold interest rates at a record low later this month. The OCR rate is still at 1.75% amid subdued economic growth and low inflation.

Westpac’s Chief Economist Dominick Stephens said it was “easier to imagine scenarios leading to an OCR cut” than a rise, and saw no scope for an increase this year. In its latest report to the market, Westpac said New Zealand could not be compared to the US, where inflationary pressures are expected to lead to a rate rise.

BNZ Senior Economist Craig Ebert said he did not expect a rate increase until February 2019: “There is a tide of better news around global economies, and even flutters of inflation, but the Reserve Bank hasn’t expressed any tendencies to jump on the bandwagon. Rates will go up eventually but we can’t expect it to any time soon. In the longer term, though, the cash rate needs to return to a sense of normality.”

ANZ economists Sharon Zollner and Philip Borkin said they did not expect “the first OCR hike until August next year, and it could be even later than this”.  ANZ added the 1 year rate currently offered the most value to customers, as it was the low point on the mortgage curve.

The ANZ economists added: “While the gap to the 2-year rate is not large, and may be attractive for those concerned about the possibility of the OCR moving up within the next year, that is not our expectation.”

However, Kiwibank Senior Economist Jeremy Couchman said a rate increase could come this year, along with rising inflation. Couchman said: “Broadly, we expect the OCR to remain at 1.75% until November before gradually lifting. An increase in government expenditure in the second half is likely to add to inflationary pressure.”