Following the Reserve Bank announcement last week the market now prices 40 basis points of OCR hikes in the year ahead, and a 30% chance of a 25 point rate hike by year-end.
BNZ says it expects a first OCR hike in March next year. This would be the beginning of a process of ‘normalising’ the OCR from its current historic low of 2.50%. We then see a steady progression of the OCR to a cyclical peak of 4.50%, by mid-2015.
"Our view is based on the premise the economy is now showing broad-based strength, against the backdrop of limited excess capacity to absorb growth. This should lead to inflationary pressures down the track, as should the gradual decline in the NZ Dollar that we see unfolding next year. In addition, we believe house price appreciation will ultimately require a monetary policy response as well as the implementation of macro-prudential tools."
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