New high forecast for OCR

ANZ's latest forecast for the peak Official Cash Rate has jumped again and is a new high for this cycle.

ANZ chief economist Sharon Zollner thinks the official cash rate it will reach 4.75% before levelling off.

This is even higher than the ASB's forecast of 4.25% and is above most other banks' endpoint of 4%.

The OCR is currently 3%.

As with other bank economists, Zollner is forecasting two more 50 point rises this year.

But she is not stopping there.

“We now see the OCR peaking at 4.75% (previously 4%), with 25bp hikes added to our profile in February, April, and May next year,” Zollner wrote.

She said the economy was not collapsing and there were other stresses: a tight labour market, strong wage growth and a lower dollar.

Economic growth came in this week at a level of 1.7% for the quarter – a number that surprised many people. Zollner said the Reserve Bank needed to see slower growth and would get bit.

“Risks are firmly tilted towards inflation and inflation expectations not falling as far nor as fast as is required to get real interest rates to a sustainably contractionary level, Zollner said.

“This means there is more work for the OCR to do.”

The current 3% OCR is reflected in retail lending rates that have a median value of 5.35% for one-year fixed mortgage rates.

On a pro rata basis, a 4.75% OCR would push the one year rate over 7%.

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