BNZ joins rivals with negative OCR forecast
BNZ economists have joined the other big four banks in predicting the Reserve Bank will adopt a negative official cash rate.
Wednesday, August 19th 2020, 11:49AM
Stephen Toplis
The bank has revised its negative prediction, alongside ASB and ANZ, which changed their forecast yesterday. Westpac has predicted a move to a negative OCR for several weeks.
Economists have reviewed their old predictions in the wake of the recent Covid-19 outbreak and subsequent lockdown in Auckland.
Previously, BNZ economists, including head of research Stephen Toplis, had given a "50-50" chance of a negative OCR.
BNZ predicts the cut to negative will happen in April, and believes the OCR will be cut by 50 basis points to -0.25%.
The call is in line with ANZ's prediction. ASB believes the OCR will fall to -0.50%.
A negative official cash rate is viewed as a controversial move among financial experts, who say there is no evidence they will help to stimulate the economy. Economists including Kiwibank's Jarrod Kerr warn a move could be ineffective.
The BNZ team seem sceptical about negative rates.
"The reason we have been reluctant to change our call is that we are not convinced further easing will have a meaningful impact on activity, employment or CPI inflation. On the other hand, we can see the risk of it further stretching financial imbalances," they said.
The economists say a negative OCR and lower interest rates may not have a huge impact on the economy.
"The mantra from the central bank is that it needs to get interest rates lower and ensure that the supply of credit is maintained (or even expanded). We would contest that the impact of any fall in lending rates from here on in will be very small."
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