Westpac economists have ditched their previous negative official cash rate (OCR) forecast as they now think the OCR is “low enough” due to strong GDP data and the scorching hot housing market.
Westpac economists, led by chief economist Dominick Stephens, joined ASB and ANZ in scrapping their previous forecasts as consensus across the market suggests that the Reserve Bank of New Zealand (RBNZ) will either keep the OCR at 0.25% or make a 15 basis point cut this year.
Stephens said that GDP had already recovered to its pre-COVID-19 level, and the housing market has “outstripped their very bullish expectations.”
“Developments over the past month or so have called into question the degree of monetary stimulus that will be required. The OCR needs to stay low, but we no longer expect that it will need to go lower,” Stephens said.
“We now predict that annual house price inflation will peak at 20% later this year (previously 16%). And looking at 2021 as a whole, we are now forecasting that house prices will rise 15%, on top of the 12% increase over 2020. The reason for this surge in prices is the sudden drop in mortgage rates engineered by the RBNZ,” he continued.
“The impact of monetary policy on house prices has proven far more potent than the RBNZ anticipated. Now is a time for the RBNZ to sit back and observe how the stimulus it has provided translates from house prices to the economy and then to inflation, rather than to cut further. It just does not seem likely that the RBNZ would cut the OCR amid 20% house price inflation.”