Not much flavour expected in OCR announcement

The official cash rate is highly unlikely to move the week when the Reserve Bank issues its next Monetary Policy Statement. indeed it has been described by one economist as being a vanilla statement.

Monday, September 8th 2014, 9:52AM

When some flavour is added to future statements appears to have economists divided. All of those surveyed by mortgagerates.co.nz about this week's statement said there would be no change.

They argue that business sentiment has softened, the housing market is under control, and they worry about falling diary prices.

Their views on the remaining two OCR announcements for the year are largely the same - no change expected. Although three economists have penciled in a 25 basis point hike in December.

Harbour Asset Management economist Christian Hawkesby says there is "a very small chance of an increase in December".

The prevailing view is that the next increase in the OCR won't be until March next year.

However, Westpac chief economist Dominick Stephens warns the markets could be "under-pricing the true risk of OCR hikes".

"We suspect that the RBNZ’s take on the outlook for interest rates will be quite different to current financial market pricing, which suggests only one OCR hike between now and next June. But despite this underlying difference of opinion, now is not the time for the RBNZ to push the point. A general election is scheduled for just nine days after the MPS, and the outcome could render economic forecasts obsolete. We suspect that the RBNZ will take a softly-softly approach, and therefore any market reaction to the MPS will be muted. A relatively small increase in swap rates is the most likely response on the day.

"Whatever the tone of the RBNZ’s statement, it will remain our view that markets are under-pricing the true risk of OCR hikes. This provides an opportunity for borrowers to fix their interest rates."

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