No surprises expected in OCR this week, but plenty to look for
No surprises are expected in the Reserve Bank’s upcoming official cash rate (OCR) and monetary policy statements this Thursday.
Monday, March 9th 2015, 10:57AM
by Miriam Bell
Thanks to a relatively benign economic environment, all the economists consulted in a mortgagerates.co.nz survey expected the Reserve Bank to keep the OCR unchanged at 3.5%.
In fact, most of the respondents firmly emphasised that a cut in the short-term was highly unlikely.
However, ASB senior economist Nick Tuffley said he that put a 25% chance on the Reserve Bank cutting the OCR over the next six months.
“Further NZ dollar strength, global economic deterioration, a severe impact from the New Zealand drought are some factors that could singly or collectively prompt the Reserve Bank to cut.”
If domestic demand slows, if domestic price pressures abate further, if global conditions deteriorate, then a cut could be possible, UBS New Zealand senior economist Robin Clements agreed.
“But - none of these are part of our base case,” he added.
A number of the economists felt the next change would be a rise.
For example, HSBC’s chief economist Paul Bloxham said the market is currently understating the risk of higher inflation and interest rates over the next couple of years.
While this partly reflects that strong growth has failed to produce much inflation, in his view this is because the economy has the capacity to absorb greater activity.
“Over time, that situation is likely to change and therefore we still expect the Reserve Bank's next move to be up, albeit not until late 2015 at the earliest.”
But, essentially, New Zealand’s solidly performing economy and continuing low inflation means the general consensus is that the Reserve Bank is unlikely to make any changes either up or down in the immediate future.
Predictions of when the current cycle might peak and at what level varied slightly.
Clements expected the cycle to peak at 4.25% by June 2016, while Bancorp Treasury senior economist Peter Cavanaugh thought it would peak at 4.50% in mid-2017.
Most of the other respondent’s cycle timing predictions came in between these dates and the peak levels predicted ranged between 4.0% and 4.50%.
ASB’s Tuffley provided the exception to the rule. He said the cycle had peaked at the current 3.50%.
All of this is good news for property investors and others with home loans as it means the currently attractive interest rate environments looks set to continue for the foreseeable future.
However, it is worth noting that some of the economists thought that Auckland’s hot housing market could impact on the Reserve Bank’s thinking. Cavanaugh and Bloxham both flagged the Auckland housing market as a potential area of concern for the Reserve Bank. Meanwhile, Forsyth Barr’s Matt Sturmer said that the Reserve Bank would focus on macro-prudential tools.
Many of the economists also said they would be watching to see if the Reserve Bank maintained the explicitly neutral tone it adopted in its last statement.
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