Reserve Bank defends OCR decision
The Reserve Bank of New Zealand (RBNZ) has defended its decision to hold the official cash rate (OCR) instead of slashing it as economists predicted.
Yuong Ha, chief economist at RBNZ, said they almost pushed through with cutting the OCR again last week but they believed that slashing the rate “would have been well choreographed, and you don't know what market pricing would have done.”
“The currency might not have reacted at all, and we have seen that in the past where the central bank is the last to act,” Ha added, as reported by Stuff.co.nz.
He also noted that mortgage rates are down between 50bp and 100bp since the beginning of the year, and the NZ dollar is down about 5% “so that is unambiguously stimulatory.”
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Overall, criticism of the central bank’s decision has been muted, which may have been due to its central thesis that the current OCR is already below inflation and is even delivering strong stimulus.
Now, different banks are sharing their forecasts for the next review – with ANZ predicting two more cuts in February and May that would result in a 0.5% rate.
Meanwhile, BNZ forecasted that the rates would remain unchanged in the foreseeable future – but with a possibility of a cut in 2020. It also noted that there’s a possibility that the OCR would increase instead of what banks have been predicting, although not perhaps before the second half of 2020.
Steve Toplis, research head at BNZ, highlighted that the central bank has dropped its estimate of the level of economic growth that can be achieved without an uptick in inflation.
“The key to the RBNZ's reluctance to reduce its cash rate stems from its enlightened view on the economy's potential growth rate” Toplis told Stuff.co.nz. “For a long time now we have been stressing that softening investment growth and restricted labour productivity meant the economy simply could not grow as fast as we have become accustomed to. Belatedly, it now appears the RBNZ has come to that very same view.”
