RBNZ likely to lift base interest rate on Wednesday

Bank economists are forecasting a rise in the base interest rate this Wednesday for the first time since 2014.

Monday, October 4th 2021, 10:24AM

by Eric Frykberg

It is likely to double from its 19-month low of 0.25% to 0.50%.

At the same time, its name is being changed from the Official Cash Rate (OCR) to the Monetary Policy Review (MPR).

But this rose by any other name will still cost as much, and is expected to filter through and bring higher prices to any retail lending that has not already moved up in anticipation. 

The Reserve Bank itself hinted two months ago that the base rate could rise, saying the economy was robust, employment was strong and so were household spending and construction.

In addition, inflation had risen above the target range, and the bank gave a strong hint that only the Covid lockdown was staying its hand. 

But that delaying action is now over, according to the ASB, which forecast a rise on Wednesday of 25 basis points.

It adds Wednesday's rise will be followed by others in November and February, finally plateauing at 1.5%.

The BNZ also forecast a 25 basis points rise.

In a video statement to investors, Westpac's acting chief economist Michael Gordon said the RBNZ was “very likely” to raise the rates on Wednesday, despite Covid 19.

“Even this latest lockdown is unlikely to derail the underlying strength of demand or the inflation pressures that are building,” Gordon said. 

“It is clear now that ultra low interest rates are no longer needed.” 

And Kiwibank's chief economist Jarrod Kerr told RNZ a rate rise was necessary and could be borne by the nation as a whole, despite Covid.

“The economy has taken this in its stride, there are some businesses out there  that are doing it very tough but broadly speaking 95% of the economy is doing very well.

“Now is the time to lift off.”

Kerr foresaw a top rate of 1.5% to 2% after the process is complete.

Tags: OCR OCR forecasts

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