Kiwibank changes its OCR forecast

The bank had previously predicted a rate rise later this year, off the back of an expected increase in inflation in the second half of 2018. The bank had previously predicted an increase in government spending would cause inflation to rise.

Talking to TMM, Jeremy Couchman, Senior Economist at Kiwibank, said the bank changed its mind amid a glut of weak data around the New Zealand economy, but still believed inflation would rise. The bank said “surprisingly weak” December CPI figures, and cautious rhetoric from the Reserve Bank, were behind its move.

Kiwibank said it expected inflation to “rebound strongly” to the RBNZ’s 1-3% inflation target midpoint from June this year, and said it believed the Central Bank would let inflation run before it would increase interest rates.

Couchman said:“RBNZ’s Monetary Policy Statement showed the bank was reasonably dovish on the outlook for the New Zealand economy and inflation. Also, business confidence hasn’t rebounded as quickly as I would have imagined following the post-election uncertainty.”

Couchman said he expected mortgage rates to remain “subdued” in the current environment: “Offshore events can throw that around, but the domestic scene suggests short term rates will remain static at this stage.”