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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 4.55 2.85 3.25 3.55
ANZ 4.44 3.20 3.59 4.00
ANZ Blueprint to Build 1.68 - - -
ANZ Special - 2.60 2.99 3.40
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.85 3.25 3.55
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.85 3.25 3.55
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 3.45 3.85 4.15
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 2.25 1.85 2.35 2.65
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 ▲2.45 ▲2.85 ▲3.15
Kainga Ora 4.43 2.88 3.28 3.59
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 ▲3.80 ▲4.00 4.34
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 ▲2.95 ▲3.15 3.49
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 2.99 3.39 3.59
SBS Bank Special - 2.49 2.89 3.09
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - ▲2.65 - -
The Co-operative Bank - Owner Occ 4.40 ▲2.85 ▲3.25 ▲3.49
The Co-operative Bank - Standard 4.40 ▲3.35 ▲3.75 ▲3.99
TSB Bank 5.34 3.35 3.75 4.05
TSB Special 4.54 2.55 2.95 3.25
Wairarapa Building Society 4.99 3.55 3.49 -
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Westpac 4.59 3.45 3.85 4.09
Westpac - Offset 4.59 - - -
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Median 4.54 2.95 3.25 3.49

Last updated: 28 September 2021 9:12am

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