Economists react as OCR kept on hold

The Reserve Bank has kept the official cash rate on hold, but said it is prepared to push rates lower if required. Economists predict a stable period of low rates ahead.

Nick Tuffley

The Reserve Bank reiterated that rates could fall further, despite the expectation of higher inflation here and overseas. 

The RBNZ said "economic uncertainty remains elevated". The central bank noted the "two way nature" of the trans-Tasman bubble would bring a marginal net impact, with rising tourist numbers counterbalanced by those heading over the ditch. 

Monetary policy support from the central bank remains unchanged. The Funding for Lending Programme and LSAP bond buying programme were kept at current settings.

ASB chief economist Nick Tuffley highlighted the RBNZ's comments that inflation would likely remain below the mid point target in the medium term. 

"We continue to expect the RBNZ will remain on hold until August 2022, with the balance of probabilities tilted to a later start than that. That is still nearly a year and a half [away] and, as we know all too well, much can happen in that timeframe – for better or worse," Tuffley said.

Michael Gordon, acting chief economist at Westpac, noted the similarities between February's Monetary Policy Review statement.

He added: "Our economic forecasts are in a similar vein to the RBNZ’s – we think that a sustained rise in inflation will be some time away. We expect the OCR to remain unchanged until 2025.

Kelvin Davidson, senior property economist at CoreLogic, said the Government's housing reforms have "probably made the RBNZ’s job a little easier".

"For example, having previously looked very likely to us, the chances of restrictions on interest-only lending may well have reduced – equity is now king for property investors, not least because of the taper/removal of interest deductibility, so even if the RBNZ did feel the need to put caps in place, borrower demand for this type of finance might naturally recede anyway."

Davidson predicted a lower-for-longer outlook on home loan rates.

"Either way, given the still-flat outlook for the OCR, significant upwards pressure on mortgage rates seems some way off yet," Davidson added.

"But with the loan to value ratio rules back in place, Government policy tightening, and affordability pressures getting more intense, a property market slowdown still seems to be on the cards as 2021 progresses."

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