What the economists said

ASB: Changes its predictions

We had been calling a March 2014 start to the tightening cycle for a long time. When we first made that call, it implied an earlier and more aggressive tightening cycle than the RBNZ was predicting. More recently, though, as the RBNZ has moved to a more hawkish stance, our forecast track had been predicting a more gradual cycle of hikes than the RBNZ. We are now changing our forecast to build in a follow-up hike in April, then subsequent hikes in July and December 2014.

We also expect a further four hikes over 2015, taking the OCR to a peak of 4.5% (previously we had anticipated three hikes this year and three more next year). That is still less aggressive than the RBNZ’s forecasts, and also slightly less aggressive than market pricing over 2014. We still see several reasons why the tightening cycle should be fairly cautious or gradual, including the strong NZD and the potential for higher rates to have a swift, noticeable impact on the economy.

Westpac: RBNZ positively surprises the market