OCR Preview: official cash rate set to hold

Economists unanimously agree that the Reserve Bank will leave the official cash rate unchanged this week, according to TMM Online's latest preview survey.

Monday, February 22nd 2021, 7:43AM

Each economist surveyed by TMM Online said the central bank would opt to keep the OCR at 0.25% on Thursday as it makes its latest call on the NZ economy.

A total of 100% of the economists said rates would remain on hold, with a 99% degree of certainty.

It marks a turnaround from late last year, when most economists predicted the OCR would fall further, or enter negative territory.

However, a strong set of data from across the economy, and record house price growth, has prompted forecasters to change their minds in recent months.

While the OCR is poised to stay on hold, economists say the Reserve Bank could signal a change in tone this week.

Kiwibank chief economist Jarrod Kerr said: "The RBNZ will remove the optionality around further rate cuts, and revise their economic forecasts higher. We’ve simply found ourselves in a much stronger position. The economic scarring from the Covid crisis has been less severe. And the housing market has been fuelled into a frenzied pace."

Tony Alexander added: "[The Reserve Bank] will be less inclined to imply it [the OCR] stays low for many, many years, and note tightening still a ways off but conditional on data flows."

Michael Reddell agreed and said the central bank would "probably take a negative OCR more clearly off the table, while suggesting that any increase is a very long way off".

Despite the growing optimism on the NZ economy, some predict the RBNZ will strike a note of caution about the threat of new Covid strains.

ASB's Nick Tuffley said: "RBNZ will want to emphasise despite the better starting point. More virulent strains of Covid-19 are appearing and could derail the world’s efforts to get on top of the pandemic. NZ’s borders will remain heavily restricted for the rest of this year at least, holding back a full recovery."

Tags: OCR OCR forecasts Reserve Bank TMM OCR Preview Survey