ANZ economists reveal OCR expectations

by Roxanne Libatique14 Jan 2021

ANZ economists have scrapped their previous forecast and now expect the Reserve Bank of New Zealand (RBNZ) to cut the official cash rate (OCR) to 0.10% in May then stop there.

ANZ economists, led by chief economist Sharon Zollner, expect the RBNZ to deliver a final 15p cut at the Monetary Policy Statement in May and stop there because a negative OCR is no longer necessary because the monetary policy has worked.

They also highlighted that vaccine developments provided more certainty around the path to normality in most of New Zealand’s trading nations, and commodity prices have held up very well in the face of the hit to global growth, while GDP bounced back by a spectacular 14% in the September quarter.

“Views around the riskiness of a negative OCR differ, but in our view, a 15bp tweak to 0.1% is just ‘more of the same’ to shore up a still-challenging outlook, while a cut to a negative OCR is a higher-stakes move,” Zollner said.

“It’s been a slow start, but the RBNZ’s Funding for Lending Programme is starting to get some traction on getting retail lending rates lower, reducing the need for all-out OCR action.”

However, Zollner clarified that a negative OCR is still possible if COVID-19 returns to New Zealand in a significant way.

“Scary downside risks haven’t completely gone away. A severe New Zealand community outbreak of the more transmissible UK or South African COVID strains could see a re-run of the March-April lockdown, or worse. We are not out of the woods on that front by any stretch,” she said.

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