Verdict in on this week's OCR call

Any change to the OCR on Thursday would stun economists who are unanimous in thinking that it will be left firmly on hold.

Friday, June 16th 2017, 2:27PM

by Miriam Bell

Economists are all singing from the same tune book when it comes to the short-term future of the OCR, according to the regular survey.

The Reserve Bank is set to make an OCR announcement this week, but all of the economists surveyed believe the OCR will stay at the record low of 1.75%.

ASB chief economist Nick Tuffley put 99% probability on it, while BNZ chief economist Tony Alexander expressed surprise that anyone would be expecting a change.

Tuffley said there was a 10% chance that the Reserve Bank would cut the OCR again but said it would take a global shock that slows New Zealand’s growth to do it.

While local economic growth is soft and global political uncertainty is casting a shadow over New Zealand’s inflation outlook, in Tuffley’s view the Reserve Bank will be comfortable sitting tight.

“We expect the Reserve Bank’s key policy assessment and tone to remain the same as in May’s monetary policy statement (MPS) – although we do expect the NZD language to be tweaked.”

Kiwibank chief economist Zoe Wallis agreed that not only will the OCR be kept on hold, but the Reserve Bank’s message will be very similar to that of May.

“There may be some tweaks to it. Their comments around the TWI and the NZD might be one area which they tweak. We might see some language around how it would be good to see the NZD lower.

“But the data reinforces that they have plenty of time to wait and see what happens before they have to make a move on the OCR.”

Infometrics chief forecaster Gareth Kiernan thinks the Reserve Bank only wants to move the OCR at MPS times if it can help it. 

“Given that there’s nothing much of any note that’s happened since the last MPS and the Reserve Bank is expecting to be on hold for an extended period of time, there’s no reason to expect a move. 

In his view, the most interesting thing in next week’s statement will be how they react to yesterday’s GDP numbers, which were a fair bit weaker than they’d expected.

“Do they interpret the weakness as a temporary blip, or as a sign that their growth expectations over the next year might be a bit on the strong side?”

But for ANZ economists, the combination of recent economic data means the Reserve Bank’s message is likely to be “nothing to see here”.

“We still have the view that the underlying pace of economic momentum is such that spare capacity is gradually being absorbed,” they said.

“At some stage that will require a shift to an explicit tightening stance by the Reserve Bank, but it is a long way away from embracing that mind-set.

“Instead its focus is on evidence that actual inflation is picking up and broadening. We’re simply not seeing that at present”

ANZ expects the monetary policy will remain accommodative while the Reserve Bank has an extended policy siesta and continues its watchful stance.

Alexander and Harbour Asset Management’s Christian Hawkesby both also think the Reserve Bank wants to see more evidence of growth before they do anything.

“I don’t think the Reserve Bank feels the case has been made to rise the OCR and they will be keeping their statement as neutral as it was in the last MPS,” Alexander said.

The Reserve Bank itself has said it won’t be starting to move the OCR up until the second half of 2019 – if economic evolution is as they expect.

However, the economists surveyed felt that increases are likely to start from mid to late 2018.

Hawkesby added that, given the US Federal Reserve is projecting it will be putting up rates in 2018 and 2019, it seems a bit unlikely that the Reserve Bank would continue to sit out of sync with that.

Read more:

Surprise at RBNZ’s OCR outlook 

No change to OCR: What RBNZ said today 


Tags: Mortgage Rates OCR OCR forecasts RBNZ Reserve Bank

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