Experts predict that the official cash rate (OCR) would enter negative territory within a year despite the Reserve Bank of New Zealand (RBNZ)'s claim that financial institutions are not yet operationally ready for negative interest rates.
The latest Finder RBNZ Official Cash Rate Survey, which interviewed 16 experts and economists, revealed that 31% of the respondents expect a negative OCR within the next 12 months. Meanwhile, 15 of 16 respondents believe the OCR would hold for June, and 12% expect the RBNZ to cut the OCR in September.
The predictions came after the RBNZ said it would need -2% interest rates to achieve its inflation and employment targets if other stimulus measures would not arise.
Dr Oliver Hartwich, the executive director of the New Zealand Initiative, said the OCR might enter the negative territory as early as this month.
“The RBNZ has signalled it is prepared to take the OCR lower if needed – even into negative territory – so we can expect this to happen. I would not be surprised if they made that move at their next meeting,” Hartwich said.
UBS economist Robin Clements added: “There is some risk of the OCR going lower in the next 12 months. Otherwise, the OCR will go higher but probably not before the end of 2021.”
Read more: Economists predict negative OCR in early 2021
In contrast, Kiwibank economist Jarrod Kerr said a negative OCR would be fraught with unnecessary risks.
“The RBNZ should opt to expand the Large Scale Asset Purchases (LSAP) programme, or provide term lending to banks, as a more effective way of lowering retail deposit and lending rates,” he said.
Alfred Guender, an associate professor at the University of Canterbury, said the road ahead remains uncertain.
“The RBNZ has done all it can for the time being. There is enough liquidity in the financial sector, and both short-term, as well as long-term interest rates, are at record lows. The stage is set for a recovery. Where we go from here depends on private-sector decisions, fiscal spending, and, importantly, on what happens to the world economy,” he said.