Weak inflation means negative OCR: Kiwibank

Today's lower than expected inflation figures will force the Reserve Bank to make an aggressive 75 basis point OCR cut in February, according to Kiwibank.

Friday, October 23rd 2020, 1:58PM 1 Comment

Jarrod Kerr

Kiwibank economists predict a major 75bps cut to the official cash rate following weak inflation data. 

Figures show inflation came in at 0.7% in the September quarter, weaker than expected, and likely to be a concern for the central bank as it attempts to revive the economy. 

The Kiwibank team, led by Jarrod Kerr, said: "Our borders are closed, and the summer months will be challenging for businesses reliant on international arrivals. With inflation starting from a weaker position, and likely to weaken from here, the RBNZ will feel emboldened to act. And in conjunction with a bank funding for lending programme, we expect the RBNZ to move aggressively and cut the OCR by 75bps in February to take the cash rate to -0.5%."

The bank does not believe negative rates will be effective, but says the Reserve Bank will opt for the unconventional monetary policy as the economic crisis deepens.

The prediction comes as markets anticipate lower interest rates next year. 

The RBNZ funding for lending programme, tipped to offer $30 billion-$50 billion of cheap lending to banks, could arrive by the end of the year. 

Banks including ASB predict mortgage rates will plummet to 1.5% next year because of the Reserve Bank's plans. 

Low rates have fanned the flames of the housing market this year, with record increases in the market since Covid. 

Reserve Bank governor Adrian Orr says the central bank is monitoring the housing market, and could reimpose LVR restrictions on investors in an effort to keep a lid on rising asset prices. 

Tags: Kiwibank OCR OCR forecasts RBNZ Reserve Bank

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Comments from our readers

On 24 October 2020 at 10:55 am Dnebonk said:
This never ending "lets just print more money" thing may be a bit frightening for the average person. Can't help but think that at some point the bubble will burst and our $NZ will suddenly dive to oblivion. Talk to the experts and all they come back with is "we're all in the same boat as other currencies or nations" ...really are we? The other rather alarming comment is "well we don't really know what will happen as we've never been in a situation like this". One wonders if it is now possible to get something for nothing and why has Buffet shifted millions into gold? Scary. Perhaps the reserve bank has discovered a perpetual motion machine that keeps printing money.

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