OCR could go up or down in 2021: RBNZ Governor

It comes as the central bank revealed its latest OCR decision and Monetary Policy Statement today. The OCR remains at a record low of 1.75%, and the Governor predicts it will stay that way until 2021. 

"We expect to keep it at that level throughout 2019 and 2020," Orr told a press conference this afternoon. "Employment is near maximum sustainable levels, however our consumer price inflation and core inflation remains below the midpoint of our 1-3% target range, and that necessitates the continued supportive monetary policy."

The central bank adopted a slightly more cautious tone on the OCR, reintroducing the phrase "the next move could be up or down". It comes as wholesale interest rate swaps trend down and banks continue to slash mortgage rates. 

Orr predicts the OCR will be on hold for a "long period" of time. He said he did "not share" the views of ANZ economists, who predict the OCR will fall to 1% next year. 

The Reserve Bank predicts GDP growth will pick up this year after a sluggish final quarter of 2018. Yet the expectations are tempered by headwinds such as slow growth in key trading partner China. "Trading partner growth is expected to moderate in 2019," Orr told the media.

Orr said the central bank's proposals to raise capital requirements for New Zealand banks did not affect his Monetary Policy Statement or OCR decision. He downplayed suggestions from investment bank UBS that banks would be forced to hike interest rates to meet the requirements. He said he "struggled" to agree with UBS's view.

Orr said the Reserve Bank was "open-minded" to dialogue about its capital requirements, but said they were not excessive when compared to other global regimes: "We are waiting for submissions we hope are considered and thoughtful," he said.

The Reserve Bank was widely expected to adopt a more dovish approach at today's announcement. Westpac Chief Economist Dominick Stephens said the statements "did not go as far as markets were expecting", with regard to a potential OCR cut. "Financial markets have been moving towards pricing in the possibility of an OCR cut by the end of this year. Today’s statement didn’t do much to endorse that view."

However, Stephens said the RBNZ statement did not seem to factor in weaker December GDP figures, and lower-than expected migration figures. He added: "Altogether, this suggests that some downside revisions to the RBNZ’s views may be already in the pipeline."