Why we won't get negative rates

ASB has become the latest bank to reverse its forecast for a negative official cash rate.

ASB economists, including Nick Tuffley (pictured) have done a U-turn on their prediction for negative rates, and now believe the OCR will trough at 0.25% until mid 2023. 

While the central bank rate is tipped to stay put, the economists believe borrowers will enjoy low rates in the medium term, following the launch of the RBNZ Funding for Lending Programme, aimed at pushing down borrowing costs for retail lenders.

The bank's team has changed its OCR prediction in light of the "resilience" displayed by the NZ economy in recent months, "and the expectation that the RBNZ's Funding for Lending Programme will help lower interest rates for borrowers in the economy". 

"The outlook is highly uncertain with scope for heightened volatility over the next few months. We expect local and global longer-term yields to continue to grind higher, but to remain at historically low levels over the next few years," the team said. 

According to the ASB team, the markets are currently pricing in five basis points worth of cuts this year, amid signs of green shoots in the economy and hopes of a successful vaccination programme, "and we expect short-term yields to remain close to the current OCR".

ASB's revised prediction follows that of ANZ. ANZ's Sharon Zollner has also abandoned a prediction of negative rates, but believes the OCR will be cut again to 0.1% this year.

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