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Westpac changes OCR forecast

Westpac has changed its forecast for the official cash rate, anticipating smaller cuts to the central bank rate early next year.

Tuesday, December 1st 2020, 8:50AM

Until recently, the bank had predicted the OCR would drop to -0.5%, but the bank now believes rates will fall to -0.25%.

The cuts would still be a historic fall to negative territory, and see the unconventional monetary policy implemented here for the first time.

Economists are divided on whether a negative OCR is needed, and whether it would be effective. 

The Westpac team, led by chief economist Dominick Stephens, forecasts two cuts next year, beginning in May. They believe there's an outside chance of three cuts.

Financial markets are pricing in little movement to interest rates next year, following recent pressure from the government on the Reserve Bank, and claims it has overheated the housing market. 

But Westpac believes markets have overreacted. It said low inflation and unemployment pressures would likely force the central bank's hand.

"Financial markets are now priced for barely any move in the OCR next year. We disagree with that. We have run an assessment of what would happen if the RBNZ kept monetary settings unchanged next year. Inflation would be significantly lower than the forecast charted above, and would remain below 2% for much longer.

"Inflation expectations would drop even further, raising the risk of deflation. Unemployment would remain higher for longer."

The bank added: "We remain of the view that the RBNZ must deliver more monetary stimulus next year in order to stabilise inflation and employment. There remains a 5%-of-GDP sized hole in economic demand, in the shape of the devastated travel, international education and tourism industries.

"Such a huge dearth of demand was always going to be a very large drag on inflation – which was too low even before Covid struck."

Westpac's commitment to a negative rate forecast puts it in contrast with ASB. The bank believes the overheated housing market and rising business confidence will prompt a halt on OCR cuts next year.

Tags: OCR OCR forecasts Westpac

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.95 3.29
ANZ 4.44 ▲3.15 ▲3.55 ▼3.75
ANZ Blueprint to Build 1.68 - - -
ANZ Special - ▲2.55 ▲2.95 ▼3.15
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.55 2.95 3.29
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.55 2.95 3.25
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 3.15 3.22 3.85
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 1.95 1.85 2.35 2.45
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 2.29 2.69 2.99
Kainga Ora 4.43 2.67 2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 3.34 3.34 4.14
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 2.49 2.49 3.29
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 ▲2.89 ▲3.29 ▲3.49
SBS Bank Special - ▲2.39 ▲2.79 ▲2.99
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.29 - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.89 3.19
The Co-operative Bank - Standard 4.40 2.99 3.39 3.69
TSB Bank 5.34 3.30 3.69 4.04
TSB Special 4.54 2.50 2.89 3.24
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 3.15 3.49 3.89
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.89 3.29
Median 4.54 2.78 2.99 3.29

Last updated: 5 August 2021 9:02am

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