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Delta outbreak set to halt rate hike

A community outbreak of Covid-19 is set to delay plans to raise interest rates, according to economists at ASB. 

Wednesday, August 18th 2021, 7:43AM

by Daniel Dunkley

Nick Tuffley

The Reserve Bank was widely expected to lift the OCR at its latest meeting this afternoon, however an outbreak of the more contagious delta variant of Covid-19 has changed the picture.

Economists at ASB suggest New Zealand will play it safe and keep the central bank rate at 0.25%. 

Financial markets had already priced in rate increases and ANZ yesterday announced a raft of rate hikes ahead of the RBNZ decision.

Yet the call appears to have been premature, with the entire country moving into level four, and Auckland and the Coromandel Peninsula in full lockdown for at least seven days. 

ASB's chief economist Nick Tuffley said: 

"We expect the RBNZ will hold fire on August 18, keeping the OCR steady at 0.25%. Given that NZ is heading into a snap level four lockdown (the strictest level in NZ), it is logical that the RBNZ will pause until more certainty over the extent of the community Covid outbreak and lockdown is established." 

Tuffley said an interest rate rise now made "little sense", as ministers plan to roll out financial support packages.

"With the Government stepping in with financial support, it also makes little sense for the RBNZ to work in the opposite direction by triggering a lift in borrowing rates."

Although today's rate hike now looks on hold, Tuffley expects the central bank to continue with rate increases later this year, if the lockdown is successful.

"We still expect the RBNZ to proceed with a quick start to its tightening cycle. That could involve a 25bp hike or even 50bp hike at the following October 6 review, or even a 25bp hike ahead of the October meeting."

ANZ disagrees

ANZ's team of economists believe the Reserve Bank could go ahead with a rate rise.

ANZ economist Miles Workman and strategist David Croy said the decision was a "tough call" for the RBNZ, but said a 25 basis point hike "remains odds on".

"Fiscal policy is well placed to support households and businesses through this lockdown, and past experience shows that provided the health response is successful, it’s very effective in supporting confidence and activity."

Tags: ANZ ASB Covid-19 OCR OCR forecasts

« ANZ hikes rates ahead of RBNZ decisionOCR decision revealed »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

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