Economists release OCR forecasts

by Roxanne Libatique13 Apr 2021

The Reserve Bank of New Zealand (RBNZ) will release its official cash rate (OCR) decision this week – and economists unanimously predict that the OCR will remain on hold at its record low of 0.25%.

In the latest TMM Online OCR preview survey, economists said they were 98% to 99% certain that rates would remain at their current level. Most of the respondents also expect interest rates to remain at their current level for the foreseeable future, with slow economic growth balanced out by wider inflationary pressures in New Zealand and overseas.

“We think this review is merely a stepping stone to the more important statement in May. In May, we get the government’s budget to run through, and the RBNZ will formally upgrade their forecasts after a soft finish to 2020,” said Kiwibank chief economist Jarrod Kerr, as reported by Good Returns.

Meanwhile, Economics New Zealand owner Donal Curtin predicted “a long slog towards sustainably meeting the inflation and employment targets,” emphasising that the RBNZ is under increasing pressure to monitor the housing market after it was instructed by the government to consider price inflation.

“They’re stuck with a very supportive monetary policy stance, and hence, ongoing low mortgage rates will continue to boost the demand side ... not an easy comms wicket to bat on,” Curtin said, as reported by Good Returns.

The latest Reuters survey also showed all 11 economists expecting the OCR to remain at its current level, with only three expecting an increase after the second half of the year.

“We expect no change in monetary policy settings, with the OCR on hold at 0.25% for the foreseeable future,” said Westpac economist Michael Gordon, as reported by Reuters.

“The recent news on the domestic economy has been softer than expected, but this is offset to some degree by a rapidly improving global outlook and growing concerns about cost and price pressures,” he continued.

ANZ chief economist Sharon Zollner told RNZ: “We expect a good deal of cut and paste from February’s statement, in particular, that the economy is still rather vulnerable and therefore monetary stimulus is still warranted, and if some of the downside risks come to fruition, they stand ready to act if required.”

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