OCR assumptions don’t add up

He says the central bank in this week’s Monetary Policy Statement seems to have deliberately downplayed the suppression of wages growth from the migration boom. “And it has assumed a level for the currency which is below where it is at.

Alexander says the RBNZ hasn’t allowed for any tightening of fiscal policy, and it has assumed El Nino has zero impact on agricultural production. “These are fairly unrealistic assumptions and positions.”

He expects the first cut in the cash rate to come in the second half of next year, but most people will not be expecting that cut for ages.

“The message from the RBNZ’s MPS could have been headlined: We are here to scare you.

“That is really what the statement was about. Because inflation is still at 5.6% there is no scope for making any errors. If inflation was 4.1%, or something like that, then the RBNZ would have given more benefit of the doubt to some of these factors and the direction of inflation falling. But at 5.6%, it still can't take any risks. It is too far away from the 1-3% range of the bank’s remit.”

Alexander says the last thing the RBNZ wants is people feeling comfort about interest rates and expecting them to fall away strongly.

“We will reach that point at some stage, and I am picking the middle of next year. The interest rate outlook people have is going to be quite different from where we sit now,” Alexander says.

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On 1 December 2023 at 1:11 pm Amused said:

Those of us who have been doing this a while remember how wrong Tony was about his interest rate predictions during the GFC and the subsequent financial consequences for so many borrowers around the country. Given his documented track record of being wrong about the future direction of interest rates and house prices I'm surprised the media still give him a forum express his opinions. Respectfully the media need to start interviewing an experienced economist like Cameron Bagrie who is actually in touch with the current state of the economy and the housing market.

OCR assumptions don’t add up

Economist Tony Alexander doesn’t believe the RBNZ will keep the OCR at 5.50% or higher through to the middle of 2025, even though the central bank is forecasting a possible further hike next year.

Friday, December 1st 2023, 9:59AM 1 Comment

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