Negative OCR on the way: ASB and ANZ

The resurgence of Covid-19 in the community has prompted a rethink from the top four lenders.

The Reserve Bank pledged to lift the cap of its quantitative easing programme last week, while leaving the door open to negative rates once banks are ready to implement them.

ASB says the OCR will fall to -0.5% in April next year, potentially staying put until 2022.

The lender believes the Reserve Bank will also kick-start a direct lending programme to retail banks, lowering their borrowing costs.

ASB economists believe the Auckland lockdown will push the central bank towards lowering the OCR further.

"The recent return to lockdown conditions reinforces that risk to the RBNZ’s growth outlook," the ASB team, led by Nick Tuffley, said.

"The key message from the RBNZ last week was that they are prepared to pull out all the stops to get NZ interest rates lower and support the economy," the economists added. "The Bank’s quantitative easing programme was ramped up by more than anyone expected and the chances we see negative interest rates next year are now much higher."

ANZ also changed its forecast. The bank expects a 50 basis point cut to -0.25% in April 2021. "Beyond that, further easing is possible, but there are constraints on the OCR going below -0.75%," ANZ economists added.

Negative rates will lead to further downward pressure on retail interest rates and term deposits, though neither are expected to fall into negative territory as a result of a negative OCR.

ASB and ANZ join Westpac in predicting a negative OCR. BNZ gives a "50-50" chance of a negative central bank rate. 

Mortgage rates continue to plummet this week. TSB is the latest to slash rates, offering a one year fixed rate at 2.49%.