OCR on hold: economists predict August cut

The Reserve Bank has kept the Official Cash Rate on hold, but gave a clear signal rates may fall further. Economists say an August cut looks increasingly likely.

Wednesday, June 26th 2019, 2:29PM

The Reserve Bank's Monetary Policy Committee, led by Governor Adrian Orr, decided to keep its powder dry for now, but admitted a "lower OCR may be needed" due to weak growth here and overseas.

Weak domestic growth, construction activity, and softer house prices were key concerns, the Reserve Bank said. 

In meeting notes outlining their decision, the MPC said they discussed cutting rates this time around and believed further cuts may be "necessary".

The central bank has shifted to a strong easing bias, and further cuts look likely before the end of the year. 

Jeremy Couchman, Senior Economist, told TMM Online a cut in August, at the next MPS, looks "very likely", considering the downbeat language adopted by the RBNZ. 

Couchman said the strong language pointing to a further OCR cut was likely chosen to "appease" debt market traders. 

Brad Olsen of Infometrics said “a lack of confidence in the economic outlook sends a clear signal that the Bank intends to cut the OCR in August 2019”.

Donal Curtin of Economics NZ said extra monetary assistance "makes sense". He said the Reserve Bank would face a difficult task managing current downside risks and keeping enough firepower to manage a significant global downturn.

He said: "Monetary policy arguably has gone as far as it should, if it wants to have anything at all left in the tank when a really big shock (as opposed to a cyclical slowdown) looms."

Westpac's Dominick Stephens said the  announcement indicates a cut is on the way by the end of winter. 

"Given the tone of this statement from the RBNZ, we remain of the view that the RBNZ will most likely cut the OCR in August."



Tags: Kiwibank

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