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OCR cut outlook shifts

Views on the prospect of an OCR cut have shifted following the Reserve Bank governor’s speech and the release of new labour data yesterday.

Thursday, February 4th 2016, 10:25AM

by Miriam Bell

In his speech, Reserve Bank governor Graeme Wheeler said that responding to low inflation with immediate interest rate cuts was not the right approach.

Adopting a mechanistic approach could lead to a fixation on headline inflation and a flexible approach to interpreting the Policy Targets Agreement (PTA) was a better approach, he said.

While he didn’t rule out OCR cuts, he emphasised that further easing would only happen if the RBNZ’s concerns over certain economic risks, such as the global outlook, deepened.

Westpac chief economist Dominick Stephens said Wheeler’s speech was encouraging for his long-held view that the RBNZ will reduce the OCR to 2.0% in 2016.

But it was also discouraging for the idea that the first OCR reduction could occur as soon as March, he said.

“Overall, the Reserve Bank sounds ready to cut the OCR if necessary, but not itching to do so.”

In his view, the upshot was that the RBNZ would be more likely to reduce the OCR if the global economy worsens, prices for key exports fall, or inflation expectations fall.

“Housing market data over February and March was also mentioned: the RBNZ would be more comfortable reducing the OCR if the Auckland housing market’s recent slowdown becomes a trend.”

Stephens said that Westpac’s call for the OCR to fall to 2.0% in 2016 fits in well with the scheme Wheeler laid out in his speech.

“We made that call in July last year on the basis of our assessment that inflation was not on track to reach two percent on average over the medium term.”

Slowing economic growth and the possibility that inflation expectations could fall further meant that call was still valid, he said.

Just before Wheeler’s speech, new labour market figures, which showed there was a significant drop in unemployment – from 6% to 5.3% - in the December quarter, were released.

This data ran counter to the market expectation that there would be a slight lift in the unemployment rate.

It has also prompted a number of economists to say the possibility of an OCR cut in March is low.

ANZ senior economist Philip Borkin said the data means that, from a monetary policy perspective, there is clearly no unemployment rate smoking gun for a lower OCR.

“It reduces the odds of an OCR cut in the near-term and we’d go so far to say as it rules out March completely.

“Instead, we see the figures justifying a continuing watchful stance from the Reserve Bank.”

ASB economist Kim Mundy agreed the employment data meant an OCR cut in March is now unlikely.

“We still expect that the Reserve Bank will cut the OCR 50bp this year, from June. But the low unemployment rate is an argument against a cut as soon as March.

“The Reserve Bank might want to wait for the May labour release to get a better handle on what is happening with labour force participation.”

Tags: ANZ ASB OCR OCR forecasts RBNZ Westpac

« Flexibility key to RBNZ policyForecasts not commitment - RBNZ »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.15 4.09 4.49
ANZ Special - 3.65 3.59 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.54 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 3.99
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 3.59 3.99
Median 5.35 4.15 4.09 4.19

Last updated: 16 September 2019 10:03am

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