Dire economic outlook should be positive for bonds: Nikko

The only reason interest rates remain as high as they are is because inflation is proving to be very sticky, McDonald said on Tuesday at an investment forum in Wellington hosted by Nikko.

“Every other indicator says we should have lower rates than what we've got.” Inflation in the year ended June was 6%, twice the top end of the range the Reserve Bank is supposed to target.

After the largest and fastest increase in monetary policy since the official cash rate (OCR) was introduced in 1999, we've already had the recession RBNZ said it wanted and growth in the current quarter is likely to be close to zero with the following two quarters showing “pretty subdued or negative growth,” McDonald said.

“The risk that I see going forward is not that interest rates are going to fall, it's by how much.”