OCR hold call is straightforward: BNZ

A stronger than expected recovery from the depths of lockdown mean an Official Cash Rate hold is "straightforward" next month, according to economists at BNZ.

As one of the few nations to return to normality during the crisis and effectively eliminate Covid-19, early economic indicators are better than expected so far, according to the BNZ team. 

Economists, including head of research Stephen Toplis, say strong electronic payment transactions data and house price figures suggest "a decent pickup in activity". 

"Yes, it is off a low base and there are questions around how sustainable it is, but there is no doubting an improvement has occurred," they added. 

In light of the positive signs, BNZ suggests the Reserve Bank has an easy decision as we approach the next Monetary Policy Statement and OCR call on August 12. 

The central bank has previously promised to keep interest rates on hold until next March, and has no cause to go back on its word.

"At face value, the case for the RBNZ to hold policy steady at its August Monetary Policy Statement appears quite straightforward," the team said. "The balance of developments since its
previous May projections have tended to be on the better side of expectations."

The Reserve Bank's quantitative easing measures, rather than a lower OCR, are believed to be the most effective way of pushing down retail interest rates. 

BNZ economists say there's a one-in-three chance of the RBNZ lifting the $60 billion limit of its LSAP programme.

"It wouldn’t be a major shock if the Bank did lift the programme limit," they added. "Back in June, the bank clearly left the door open to increase the LSAP programme if needs be. And, if it does, it would be of sufficient size to be meaningful, so think of an increase to around $90b."

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