OCR on hold but not all good news for borrowers

• Tweet

Economists expect the Reserve Bank to leave the official cash rate on hold this week, but lending is already becoming more expensive.

Monday, September 9th 2013, 12:05PM 1 Comment

by Susan Edmunds

All of the economists polled by mortgagerates.co.nz expect the OCR to be kept at 2.5% this Thursday.

Westpac chief economist Dominick Stephens expects the first move in the OCR next March and said the Reserve Bank would come out no more hawkish this time than at the last announcement.

In July, Reserve Bank governor Graeme Wheeler made it clear that a cycle of hikes was on the way and Stephens said that would likely be repeated.

He said there was stronger economic data now although the housing market outlook was distinctly weaker, due to looming loan-to-value speed limits and a sharp increase in fixed interest rates at retail banks.

“I’d emphasise the latter more than the former. But bother have the potential to slow the housing market and fewer OCR hikes will be required than would otherwise.”

ASB economist Christina Leung agreed  recent economic data such as an increased Fonterra payout and the drop in the dollar pointed to increasing inflation pressures. But she said the Reserve Bank was likely to factor in the impact of LVR restrictions on housing, which would offset those pressures.

“We expect the RBNZ to incorporate an economic impact of these new rules in the September forecasts, revising its bullish house price inflation forecast lower and reducing domestic inflation pressures. Depending on how much impact the RBNZ expects the new rules to have, it could provide [it] with a relatively unchanged interest rate outlook from June.”

ASB still expects the bank to start lifting the OCR from March, reaching a 4% peak in late 2015.

All but two of the economists surveyed expect a 25 basis point lift in March next year. Paul Bloxham, of HSBC, and Donal Curtin, of Economics NZ, expect to see a lift in December.

BNZ’s economists said the 75 basis points of rates hikes priced in for the coming year were less than might be expected when growth indicators were going from strength to strength.

They acknowledged that retail rates had been forced off their historic lows recently but said the Kiwi dollar was lower than the Reserve Bank assumed in its last monetary policy statement.

“While the market view is more conservative than our own (of 125 bps of hikes in the next year), it remains more aggressive than the interest rate track published in the June MPS (with an inferred first hike in Q3 2014). Even in the event the RBNZ turns a tad less dovish … there is almost no chance it produces a rate track as aggressive as currently priced, let alone the incline we see for the OCR. More’s the pity.”

Deutsche Bank said it was likely the Reserve Bank would retain the view that a modest policy tightening cycle should begin from the third quarter of next year,  perhaps followed by a slightly faster pace of subsequent tightening.

“Indeed, we think there may be tactical advantages in presenting such an outlook at this stage. However, most likely the RBNZ will bring the timing of the first rate hike forward just a little, closer to the March 2014 MPS start-point that we have been forecasting since last year. We expect the pace of projected tightening to remain gentle i.e. no more than our forecast of 75bps of tightening by the end of 2014.”

Comments from our readers

Sign In to add your comment