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Markets predict OCR to remain at 1%

Financial markets are pricing in a reduced chance of further official cash rate cuts this year amid expectations of improved economic growth.

According to ANZ's latest weekly report, markets have priced in 12 basis points of cuts over 2020. Only last September, markets had predicted 44 basis points of cuts this year.

"Only a small chance of further OCR cuts is now priced in," economists, led by Sharon Zollner (pictured), said.

The ANZ economists believe "more positive domestic data flow and receding downside risks" have reduced the odds of another OCR cut and have also boosted the NZ dollar in recent months.

The improved economic outlook prompted ANZ to change its OCR outlook last week. The bank now predicts rates will stay on hold, and no longer believes the Reserve Bank will slash rates in May. 

"We take some comfort from the fact that the recent stabilisation has been fairly broad based. To be sure, it’s not a picture of growth taking off by any means, but thus far it appears consistent with the RBNZ’s November MPS forecast for a gradual improvement in growth into 2020," ANZ said last week.

While the bank's economists predict a year of inaction on the OCR, they warn "ever-present downside global risks" could have an impact on monetary policy this year.

The economic impact of China's coronavirus "could be significant", the bank said. "For New Zealand, the most likely immediate impacts will be on tourism and via the food service channel," the report added.

 

 

 

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