Nine more months of unchanged OCR predicted

Economists expect the official cash rate to remain at 2.5% when the Reserve Bank releases its Monetary Policy Statement and expect that it won't start rising till March next year.

Monday, June 10th 2013, 7:25AM

by Susan Edmunds

The past few weeks have been dominated by commentary about interest rates. Reserve Bank governor Graeme Wheeler said the OCR could drop if the looming macroprudential tools cool the housing market, and economists weighed in with predictions that floating rates could hit 7% by the end of next year.

But the 13 economists surveyed by www.mortagerates.co.nz all agreed that for now at least, the rate is on hold.

All were 90% to 100% sure of their prediction, except for Brent Stephen, of Forsyth Barr, who put the likelihood of the rate remaining at 2.5% at 75%.

Nine said the next move of the OCR would happen in March next year, when they all expected the rate to rise to 2.75%.

Robin Clements, of UBS, and TD Securities’ Annette Beacher expected the rate to move to 2.75% in December, NZIER economist Shamubeel Eaqub expected it to happen in January and Peter Cavanagh, of Bancorp did not expect any move until the middle of 2014.

Beacher said next week’s monetary policy statement and OCR announcement would be worth watching. “The tone will be interesting as the data have improved significantly but he will try and talk down rate expectations and the NZD regardless.”

Clements said house price inflation was driving his prediction of an earlier increase. “The housing and construction cost cycle is well ingrained and only going to get worse in Auckland and Christchurch.”

He said macroprudential tools would likely help but the OCR would be needed, too. “They’re probably too late already.”

Kiernan said there had been developments both ways on interest rate predictions over recent weeks.

Since the last MPS, there had been strong economic growth, improving labour market data and the dollar was trending down. But he said that had to be balanced against the fact that the Reserve Bank was clearly still very worried about house prices.

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