ANZ economists release update on OCR forecast

Economists discuss New Zealand’s economic recovery

ANZ economists release update on OCR forecast

Economists and experts are updating their official cash rate (OCR) forecasts as they await the Reserve Bank of New Zealand’s (RBNZ) next moves, with ANZ economists now expecting the central bank to increase the OCR as soon as February 2022.

The RBNZ has been forecasting a -0.6% drop for the March quarter, while the market expectation had been for a 0.5% rise. However, expectations have been sharply rising in recent days after the release of positive data in the run-up to the GDP release. Retail sales figures have also fared much better than economists expected, according to Interest.co.nz.

The central bank expects the first increase in OCR, from the current 0.25%, in the second half of next year. However, even before the release of the GDP figures, economists had suggested that the first OCR increase might come earlier than predicted.

ANZ chief economist Sharon Zollner and senior economist Miles Workman said the first-quarter GDP figures confirmed that New Zealand’s economic recovery “has been spectacular relative to early-pandemic expectations.”

The ANZ economists stated that the core drivers of domestic demand, as well as lingering supply disruptions and biting capacity constraints, result in increasing inflation pressures.

“That’s consistent with OCR hikes being needed, and a year from now feels too far away,” Zollner and Workman said, as reported by Interest.co.nz. “However, a February hike is highly conditional, in light of the Reserve Bank’s ‘least regrets’ approach. In particular, the evolution of inflation, inflation expectations, and the labour market are key.”

Earlier this month, Kiwibank economists also released their forecasts – noting a risk of three interest rate hikes next year that could increase the OCR to 1% by the end of 2022.

Kiwibank economists said financial markets were already sensitive to anything deemed hawkish, but the RBNZ’s decision to keep the OCR at 0.25% in May fuelled the fire in the financial markets.

“The Kiwi dollar and wholesale interest rates were propelled higher. We see further upward pressure in coming months,” Kiwibank economists said, as reported by Interest.co.nz.

“Of course, a move in May means a follow-up move in August and introduces the risk of three hikes to 1% next year,” they added. “That’s the risk we believe is more likely to take the market from here. And we’d expect to see all interest rates rising in response.”

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