Focus on tone, not content, of OCR call this week

An official cash rate cut this week would come as a major surprise to all economists.

Monday, May 8th 2017, 6:00AM 1 Comment

by Susan Edmunds

A Good Returns poll shows economists are unanimous in their expectation that the Reserve Bank will keep the rate at 1.75% this Thursday.

Nick Tuffley, of ASB, said he was “99% sure” there would be no movement. He and Robin Clements, of UBS, said it would take a major global economic shock to change the OCR at the moment.

Clements said the focus this week would be on whether the Reserve Bank maintained its neutral stance. “We believe they will.”

Kiwibank’s economists agreed it would be the tone of the statement rather than the decision that captured the most attention.

“While we still expect the OCR to be on hold for a while yet, there have been several key data developments that have prompted us bring forward our view on the timing for an OCR hike. We now expect to see the RBNZ start lifting the OCR at the end of 2018, as opposed to mid-2019.”

At Westpac, economists said the challenge for the Reserve Bank was to keep inflation on target.

“Headline inflation has reached the 2% mark much sooner than expected, though partly due to some temporary factors that will wane over the coming year. Still, measures of underlying inflation have also been picking up for the last year or so, which suggests that the RBNZ will need to move away from the current loose monetary policy settings at some point.”

The economists surveyed expected the first increases to come in mid or late 2018.

“We expect the RBNZ’s interest rate projections to be more consistent with an OCR hike by late 2018. This would probably be neutral for financial markets on the day; an earlier start than previously signalled, but stopping short of endorsing market pricing for a hike by March next year,” Westpac's team said.

Tags: OCR forecasts

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Comments from our readers

On 9 May 2017 at 4:03 pm AFA Muggins said:
Interesting though that the banks have just put their rates up this week. Of course the banks always state higher costs from getting funds overseas etc, yet we have the most profitable banks in the world with some of the highest ratings, the exchange rate has been in their favour in last few years and the margin they charge since the GFC is still about 50% higher than it was before the GFC.

Most be heaven being a bank. Meanwhile society is getting killed with debt.

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