OCR predicted to stay put until 2018

by Maya Breen22 Mar 2017
Overwhelming consensus from New Zealand’s economists show a shift in the official cash rate will not be made by the Reserve Bank in tomorrow’s March announcement.

The RBNZ last cut the OCR by 25 basis points in November to its current record low of 1.75% and left it unchanged in its February announcement, the first one for 2017. 

In a poll of 11 economists conducted by BusinessDesk, all expected no rate change to be made tomorrow.

Speaking to NZ Adviser, Canstar general manager New Zealand, Jose George also doesn’t expect any surprises in the upcoming announcement and expects the cash rate will also hold for the next couple after that until 2018. 

“There’s no definite in this but we’re seeing anything or expecting anything to suggest a change this year at least for sure.” 

“The housing market seems to have settled a bit, so there is no additional impetus on them to really want to shake that up at this stage.”

New Zealand Institute of Economic Research (NZIER) Shadow Board considers an OCR of 1.75% as still appropriate, it said in a statement released yesterday.

“The New Zealand growth outlook remains solid, with signs underlying inflation pressures are lifting. This suggests little need for further interest rate cuts,” said NZIER senior economist, Christina Leung. 

“But there is no need to rush into rate increases. Downside risks from global developments suggest the Reserve Bank should adopt a wait and see approach, with any tightening likely to be some time away”

“The Shadow Board recommends the Reserve Bank continues to leave the OCR at 1.75% this Thursday. Inflation is picking up from a low base and with capacity pressures expected to broaden beyond the construction sector, we expect the Reserve Bank to keep the OCR on hold until mid-2018 before embarking on a measured tightening cycle.”

On whether the banks will make further interest rates movements, George said, “I think it is quite clear that they are pricing their mortgage book based on reality which seems to be their funding costs have increased over the last six to nine months, so they have been moving their pricing independent of the official cash rate.

“We saw a flurry of [interest rate] increases probably over the last two to three months - things have sort of settled down but that’s probably more of a reflection of the softening of the market rather than [the banks] funding situation."
 

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