OCR to stay at record low: Preview Survey

New Zealand’s top economists predict the Reserve Bank will hold the Official Cash Rate next week, as the central keeps a close watch on GDP growth and inflation.

Friday, September 21st 2018, 7:30AM

Economists responding to TMM Online’s OCR Preview Survey say there will be no change next week. They said they were between 95 percent to 100 percent certain.

At last month’s MPS announcement, the central bank Governor Adrian Orr indicated stalling growth could lead to a rate cut. But stronger than expected GDP growth figures this week revealed 1 percent growth in the economy in the three months to June, the biggest quarterly rise in two years.

Respondents to our survey, including economists those from UBS, Kiwibank, Infometrics, TD Securities, and ASB, believe the OCR has troughed in the current cycle. Only one respondent, the independent Michael Reddell, expects a further cut to the 1.75 percent rate.

Donal Curtin of Economics NZ said a sharp slowdown in growth between September to December could still lead to an OCR cut, but described the scenario as “unlikely”.

Kiwibank’s Jeremy Couchman struck a bullish tone on the economy. He expects the OCR to climb from May 2020 — 3 to 6 months earlier than the RBNZ signalled in August. He added: “CPI Inflation sits at 1.5% year-on-year. The Bank sees inflation only gradually lifting back to the 1-3% target midpoint from here. In contrast, we expected inflation to quickly return to the RBNZ’s 2% target mid-point, based on a weaker currency, rising wage pressures and ongoing capacity constraints in the economy.”

ANZ’s Sharon Zollner was more cautious. She expects the bank to hold the OCR steady and give itself enough time to “watch, worry, and wait”: “We expect the RBNZ will continue to state that the next move in the OCR could be “up or down” – leaving cuts firmly on the table. Markets are pricing in about a 20% chance of an OCR cut by the middle of next year. We expect that the RBNZ will be broadly comfortable with this, and therefore will not be setting out to elicit a significant market reaction in either direction.”

Tags: ASB Kiwibank OCR OCR forecasts RBNZ