RBNZ is ‘in no hurry’ to lift the Official Cash Rate (OCR) according to ASB Bank, which has shifted its OCR outlook to 2020.
ASB projected last week that the OCR would remain on hold until November 2019, after which it expected approximately 50bps of hikes per annum. The bank has now pushed the start of RBNZ’s next expected tightening cycle to February 2020, saying it still remains optimistic about the economic outlook and does not expect cuts to the OCR.
It also stated that if inflation pressures failed to materialise, OCR increases may be pushed back even further.
ASB still expects earlier OCR increases than RBNZ, which expects to keep the OCR at its current level through 2019 and past early 2020. The bank says this is due to a number of factors; namely, its expectation of higher GDP growth than is expected by RBNZ, its expectation or stronger wage growth and the anticipation of a spill-over of higher wages into consumer price inflation.
If these factors fail to materialise, it says OCR increases will likely occur later than early 2020. If growth falls short of RBNZ forecasts, OCR cuts are a risk for 2019.
ASB has also revised its assumed end-point for the OCR, and now expects it to peak at 2.75% this cycle (August 2021 onwards). The ‘neutral’ OCR is likely to be closer to 3% than the 3.5% assumed by RBNZ. ASB expects that RBNZ will tread more carefully given the moderate policy tightening expected from other central banks.
In other trends, ASB expects housing construction to surge again this year, though there is risk of a weak housing market in Auckland. It also expects a further growth in dwelling consents for Auckland and Wellington, along with other regions where housing supply remains tight. For the rest of the country, it says construction is likely at its peak and will gradually ease to reflect slowing population growth.
Non-residential construction demand will likely fall over the second half of 2018, reflecting the recent fall in business confidence.