OCR to peak at 2.75 percent: ASB

Economists at ASB believe New Zealand is set for a long-term low interest rate environment, with the OCR to peak at just 2.75 percent in the cycle.

Monday, August 27th 2018, 10:15AM

by Dan Dunkley

The economists believe there has been a reset in the long-term OCR rate. In its latest quarterly economic forecast, ASB’s Nick Tuffley said the Reserve Bank’s “neutral” OCR is probably closer to 3 percent than the 3.5 percent generally assumed by the central bank.

The bank added international pressures would influence the bank’s thinking: “We also expect that the RBNZ will tread more carefully given the moderate policy tightening expected from other central banks and downward global risk profile: the RBNZ is unlikely to continue to raise rates when overseas central banks are on hold or contemplating rate cuts.”

ASB also revised its expectations for the next OCR rate increase, after the central bank said it would not hike the OCR until 2020.

The lender pushed back its forecast for an OCR increase to February 2020, from November 2019 previously. It said the central bank’s “cautionary” assessment, and the expectation of low inflation, would see the OCR remain at an historic low for longer. ASB also warned depressed inflation could see the central bank opt to hold rates at 1.75 percent until late 2020.

Economists at ANZ and Westpac recently warned the next OCR move could be a cut. The central bank has refused to rule out the prospect of a cut should downside risks to the economy become a reality. ASB broke ranks with the two lenders, however, saying it did not expect a cut.

Tags: ASB OCR RBNZ Reserve Bank

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