OCR to remain on hold: economists

Economists expect the Reserve Bank to leave the official cash rate unchanged this week, but suggest more support is on the way for lenders, individual borrowers and businesses.

Jarrod Kerr

TMM's latest OCR preview survey, conducted among leading NZ economists, reveals analysts unanimously believe the OCR will stay at its record low of 0.25%. 

The central bank is tipped to cut interest rates to negative territory in the next six months in an effort to kickstart the economy after the Covid lockdown and subsequent turmoil. 

But no changes are expected on Wednesday as the RBNZ focuses on other tools to boost the economy. 

The central bank is poised to reveal its Funding for Lending Programme, which will provide cheaper funding for retail banks through the crisis. 

The RBNZ is expected to use the FLP to channel low cost funding to businesses.

The FLP, estimated to total anywhere from $30 billion to $50 billion, will be focused towards SMEs, economists at ASB said. 

The Reserve Bank is expected to comment on the soaring housing market since the pandemic. RBNZ measures, including lower interest rates, no LVR restrictions, and quantitative easing, have led to record prices this year despite the turmoil. 

Independent economist Tony Alexander told TMM he expects the central bank to note "expressions of concern regarding low deposit bank lending, plus acknowledgment of positive trends in the economy".

Alexander is one of the few survey respondent who believes the OCR has troughed in this cycle. 

Donal Curtin of Economics NZ also expects the RBNZ to address the housing market. 

"And while they may well be comfortable with higher asset prices, as that's one of the channels that monetary policy works through, is it time to say something about the risk of valuations getting too rich, for the likes of houses and equities. And will they want to say something more about the effect on wealth inequality."

Kiwibank's Jarrod Kerr said the "outlook is still clouded with uncertainty", and predicts the OCR will fall further in the months to come. 

The RBNZ could hint further at a cut this week, Kerr said.

Kerr does not think a negative OCR would be effective, but expects the central bank to pull the trigger early next year.

"We are expecting the RBNZ to set us up for an OCR cut in February. The RBNZ could do so by lowering the OCR track, to reflect the probability of future cuts. Or at the very least, there needs to be a negative rate scenario for us to play with."

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