OCR Preview: economists predict no change

Economists believe the Reserve Bank will hold fire on making further cuts to the Official Cash Rate next week, with a further cut more likely in November.

Respondents to TMM's OCR Preview Survey unanimously predict the Reserve Bank's Monetary Policy Committee will opt against a cut next week following the 50 basis point reduction in August. 

The surprise cut to a record low 1% caught markets off guard last month, and economists say the size of the cut will give the central bank breathing space until November. 

The Reserve Bank has cut rates over the course of 2019 amid sluggish economic growth and concerns over global trade. 

Leading economists responding to TMM's survey said they expect the rate to remain unchanged, with an outside chance of a further cut. 

Jarrod Kerr, chief economist at Kiwibank, said: "We expect the RBNZ to keep the OCR unchanged next week. The decision to cut 50bps to 1% in August was the fast-forwarding of two cuts into one. So we don’t need another cut so quickly. Conditions haven’t deteriorated that much."

Kerr gave a 30% probability of another cut, "which is high and reflects the environment we are in".

Brad Olsen of Infometrics also believes rates will remain on hold, but does not discount the possibility of another cut.

"We currently expect no change in the OCR from the Reserve Bank at next week’s review. However, with the Reserve Bank making bold choices in recent times, and a generally more sour economic outlook continuing to become reality, there’s still a chance of a cut," Olsen said.

Michael Reddell also predicts the OCR will be on hold. He believes the central bank could fire a warning on the economy.

"I would expect them to move further away from the expectation of a recovery in growth (push it out further), as the local and foreign data have continued to deteriorate since the last MPS," Reddell adds.

ANZ's Sharon Zollner expects the rate to remain on hold, and instead believes the OCR will fall in November, February and May, taking it to just 25 basis points.

"We’d expect some line about how downside risks have increased, and to leave the door open for a lower OCR from here," Zollner said.


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