OCR reaction: RBNZ upbeat on outlook

Economists say the Reserve Bank struck a positive tone on growth as it kept the OCR on hold, but fear it may have underestimated the impact of the coronavirus.

The Reserve Bank said economic growth "is expected to accelerate over the second half of 2020", and said the outlook for the economy was brighter amid increased infrastructure investment from the government.

The Reserve Bank's forecast OCR track now has no further cuts pencilled in, and has a hike forecast for 2021.

Jeremy Couchman of Kiwibank said the RBNZ's statement was "a bit more upbeat" than expected, with the OCR track lifted slightly over the next few years.

"They've jumped on the positive elements since November and seem a bit more at peace," Couchman said of the central bank.

ASB's Nick Tuffley said the lifted OCR track was one of the biggest surprises in the announcement. The bank has pulled its forecast of an OCR cut this year.

Donal Curtin, of Economics New Zealand, said the RBNZ had "rightly" welcomed the government's infrastructure stimulus. Governor Adrian Orr said the government's infrastructure plan had "shifted" some of the emphasis away from the MPC.

The RBNZ surprised economists by playing down the impact of the coronavirus on the NZ economy. The central bank said the economic impact of the virus would be of "short duration", with most of the impact in the first half of this year.

Couchman said this was still a "big unknown" for the NZ economy. 

Michael Reddell was also surprised by the lack of focus on the coronavirus. 

"I'm mostly struck by how little focus there is on the coronavirus: three quarters through the press release before there is any mention. The tone might have made sense two weeks ago but seems complacent now, including giving very little weight to the sudden stop in the world’s second largest economy."

Westpac's Dominick Stephens said the RBNZ's predictions for the coronavirus looked "pretty mild".

In a press conference this afternoon, Adrian Orr said "no one can underestimate" the impact of the coronavirus. He said he was "confident" the outlook for the economy had not changed since the MPC made its decision on February 5. 

"We're sticking to what we can see and listening to the experts," Orr said. 

Orr said the RBNZ considered an "insurance cut" to the OCR, "but didn't see the need". "We have very low stimulatory interest rates," he added.

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