OCR low but not forever

The official cash rate might be low now but it could be as high as 5.75% in three years’ time, according to one economist polled by www.mortgagerates.co.nz.

Friday, November 2nd 2012, 6:23AM

by Susan Edmunds

Its latest survey of economists found that all agree that the OCR will stay at 2.5% at least until the end of this year.

When it will start to move is less agreed upon: JP Morgan predicts the earliest rise, an increase of 25 basis points to 2.75% in March 2013. UBS and HSBC think it will reach that level in June 2013.

ASB predicts the OCR will be 2.75% in September 2013 and BNZ predicts the same in December next year.

Bancorp picks the latest increase, with a move from 2.5% to 3% tipped in June 2014.

Infometrics expects no change until December next year but then a rapid increase, with the OCR expected to reach 4.75% in December 2014 and 5.75% by September 2015.

Spokesman Gareth Kiernan said he was aware his prediction was hawkish compared to some.

“Over the period of late 2013, early 2014, we are expecting the spare capacity in the economy to be absorbed. At the moment there’s low inflation and relatively soft labour market. We’re expecting things to return to something like normal.”

He said there would still be an element of uncertainty in terms of the European economy and people would likely be more wary about debt than they were last decade. “The peak of 5.5% to 6% [being predicted] is still significantly lower than in previous cycles.”

Chris Green, of FNZC, expects the rate to move in December 2013.

Before last week’s announcement, he might have been tempted to push his prediction out to 2014 but he said Reserve Bank Governor Graeme Wheeler was taking a “business as usual” approach.

He said if the rate were to change over the next year, it would more likely be down than up, potentially driven by the Reserve Bank of Australia cutting rates.

Another Australian rate move next month is tipped as a 60% chance.

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