OCR predictions for 2011

The official cash rate (OCR) is predicted to increase by 25 basis points in June to 3.25% with only two further increases by the end of 2011 according to a www.mortgagerates.co.nz survey of economists.

Wednesday, December 22nd 2010, 7:26AM 4 Comments

by Jenha White

Opinion is split on the second increase, with ASB and Westpac expecting the OCR to rise to 3.50% in September, whereas ANZ and BNZ believe the second increase will be more significant with 50 basis points making it 3.75%.

December 2011 projections are more widely divided with ASB and Westpac expecting the OCR to end the year at 3.75%, ANZ expecting 4.00% and BNZ 4.25%.

BNZ economist Tony Alexander says in the Weekly Overview that the economy is growing but not by all that much.

He says the level of disappointment has been so great that after raising the official cash rate by 50 basis points over June and July earlier this year the Reserve Bank called a halt and now suggest they won't be raising it again until the June quarter of next year.

"It is very unusual to have such an interruption in a tightening cycle but these are very unusual times which we are living through and sure as eggs are eggs unusual things will happen again next year."

He says that for the moment floating still looks good and is great for all those people wanting to get their debt levels down as quickly as possible. But at some stage it will pay to flick into a fixed rate.

He says overall BNZ's expectation is that the economy will be seen as finishing this year on a weakish note, starting next year also weak, but accelerating as the year progresses driven by a variety of factors eventually taking growth to 3.6% for the calendar year.

He predicts factors driving growth will be:

Rebuilding Christchurch following the earthquake.
Rugby World Cup.
Record average commodity price feed-through.
House construction lift late in the year in response to shortage worries growing.
Business capital spending slowly improving as a productivity focus returns in light of a labour market potentially tightening up rapidly.
Low NZD/AUD exchange rate.

But says there will be offsets from things like the following.

Tightening fiscal policy
Drought
Structural debt tolerance shift of unknown magnitude.
Tightening monetary policy from mid-year probably.
Easing net migration inflows.
Potential shocks from offshore.
High fuel prices.

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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Comments from our readers

On 22 December 2010 at 9:54 am John said:

Bank economists saying they can predict where the OCR will be sitting at in 12 months time is like fortune telling. The one in particular quoted above has flip flopped consistently on his advice to customers regarding interest rates. Borrowers will well remember at the height of the interest rate cycle his advising people to fix their loan repayments for 4-5 years because interest rates (might) reach double figures. Of course we all know how that turned out!

On 22 December 2010 at 6:16 pm Gopi said:

None of the economists were correct with respect to interest rates, house prices etc in the past decade. Most economists were advising in 2004 that first home buyers should wait because the hosue prices will crash. The first home buyers who waited had never had a chance even now to get into the market. In 2007, the economists suggested that people should lock in their interest rates for 3 years plus. At that time most economists know about sub-prime market in USA. They do not have any cristal ball, but there predictions are not even close. On the other hand the economists are very good to tell us why their predictions were not correct. They come up with multi amount of reasons why the predictions did not come through. I wonder why banks are paying so much of money for these predictions...If you ask me they are worst than the weather man!!!

On 22 December 2010 at 8:29 pm w k said:

Don't forget the usd/nzd rate. They were looking at usd0.45 to nzd1.00, when it was around the usd0.60 mark. that makes 3 wrong major predictions wrong - housing, interest & currency. It did go down, but not anyway near the usd0.45 mark and only temporary, and gone up to high usd0.70s.
Wondered why the same economists are allow to keep making predictions / forecasts?

On 23 December 2010 at 11:14 am John said:

Hi Gopi & w k. Yes being a bank economist must be a pretty plum role like you both say. I just have a lot more respect for some of them than others and as mentioned above the one quoted in the article seems to change his mind every month to suit the bank he works for. The mark of a truly good economist in my opinion is to be impartial otherwise they are just a mouthpiece for the bank they work for which we all know is not always going to be the best advice for our clients. Merry Christmas to you.

OCR predictions for 2011

The official cash rate (OCR) is predicted to increase by 25 basis points in June to 3.25% with only two further increases by the end of 2011 according to a www.mortgagerates.co.nz survey of economists.

Wednesday, December 22nd 2010, 7:26AM 4 Comments

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