OCR to trough at 0.75%: ASB

The bank's team of economists previously forecast a fall to a 0.50% cash rate, from today's record low of 1%. 

Yet improved business confidence figures from ANZ's monthly survey have caused the bank to change its mind. 

ASB's team of economists, including Nick Tuffley and Jane Turner, said: "The bounce in confidence occurred earlier than we expected, but does follow tentative signs that interest-rate sensitive parts of the economy are improving, with the housing market springing back to life and retail sales proving surprisingly strong over Q3."

The bank predicts the RBNZ will still take action in May next year, but only to offset the impact of new capital adequacy proposals.

"We still expect a 25bp OCR cut in May. The growth outlook for the NZ economy remains sub-trend, and this should force the RBNZ’s hand. There is also the likelihood that pending regulatory changes will tighten financial conditions and slow the economy, requiring a prolonged period of policy stimulus."

The bank believes the new capital proposals – to be published later today – will cause mortgage rates to increase by 50 basis points. 

"There are already signs that the capital requirements are adversely impacting credit supply for some sectors. NZ yields are still expected to decline over the next few months, albeit to a lesser extent than previous [sic] forecast."

ASB also expects the Reserve Bank of Australia to deliver a 25 basis point cut in February.