Reserve Bank surprises by keeping OCR at current level

by Ksenia Stepanova13 Nov 2019

The Official Cash Rate (OCR) has remained unchanged at 1.0 percent, contrary to economist expectations of a 0.25 percent cut.

The Reserve Bank’s November statement said that the Monetary Policy Committee had “debated the costs and benefits” of keeping the OCR at its current level versus reducing it to 0.75 percent, but had agreed that “both actions were broadly consistent with the current OCR projection.” It also agreed that previous OCR cuts had had their intended impact on the economy, and that a larger effect should manifest over the longer term.

Economic growth is expected to be subdued over the rest of 2019, and the Reserve Bank says it will be monitoring developments as they happen. Employment is at its maximum sustainable level, and inflation is within target range.

The Committee said that developments since its August statement didn’t warrant a change to the OCR, which is already at a stimulatory setting, but that it will “remain prepared to act as required.”

The decision will come as a surprise as every major bank had been forecasting a 0.25 percent drop for November, with most predicting further cuts in 2020. Banks will now be looking to reassess their forecasts for the coming year, and the ‘mortgage rate war’ will likely not rage quite as strongly over the following months.

The next OCR decision and MPC statement is expected in February 2020.

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