OCR preview survey: Economists divided on tone

Once again, no OCR changes are expected during next week’s MPS announcement. Yet economists are divided on how rising inflation will impact OCR forecasts and the governor's tone.

Economists who responded to TMM’s OCR Preview Survey unanimously agree there will be “no change” as the central bank outlines its MPS statement next Thursday. The economists say they are between 90%-100% certain.

Next week’s MPS comes off the back of strong inflation figures, largely driven by skyrocketing petrol prices. Economists are divided over whether rising inflation will prompt the bank to adopt a more hawkish tone on the economy, or whether Orr will “look through” the inflation numbers and continue to suggest the OCR could move “up or down”.

Peter Cavanaugh of Bancorp Treasury Services expects the governor to look through inflation numbers. He said: “Expect a slight change to the forecast inflation path to reflect recent rise in tradables inflation (petrol prices) but no significant change to OCR track.”

Annette Beacher of TD Securities said the inflation track would be be lifted, but the OCR profile would “be judgmentally adjusted to remain the same as August”.

Some expect more a more positive tone. Westpac’s Dominick Stephens expects the governor to be “a little more hawkish than the August missive” due to the inflation figures, but expects the central bank to stick to the same outlook.

Brad Olsen of Infometrics said the inflation numbers could help to “ward off calls for a cut”. He added:  “We expect the OCR will remain at 1.75%, after a strong Q2 GDP result...Regardless, we expect the next move to be a rise.”

Others doubt whether rising inflation will prompt the central bank to end talk of a rate cut.

Kiwibank’s Jeremy Couchman doubted whether it would affect the governor’s language: “Ultimately though, we don’t believe these developments will be enough to push the RBNZ to alter its OCR outlook and wording that “The direction of our next OCR move could be up or down”."

Couchman said weak GDP growth would see RBNZ adjust its inflation forecast lower, “which would justify the Bank’s cautious monetary policy stance”.

ANZ’s Sharon Zollner believes the governor will retain a cautious tone,  “choosing to emphasise – as they did in September – that downside growth risks have not gone away”.

Zollner is among a couple of economists that have not ruled out an OCR cut next year. She added: “While the RBNZ will acknowledge the stronger data, we expect that they will reaffirm a cautious approach.”

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