OCR decision: 'Nothing to see here'

Thursday 23 March 2017

Interest rates look set to remain low for some time following a Reserve Bank OCR announcement this morning which was as expected and determinedly neutral, according to economists.

By Miriam Bell

ASB chief economist Nick Tuffley said the Reserve Bank’s decision to leave the OCR on hold at 1.75% was widely expected.

They also maintained a neutral bias on the outlook, he said.

“There have been a few subtle changes since the February Monetary Policy Statement (MPS), but nothing too different. Overall, their message is the same.”

Tuffley said the Reserve Bank noted there are signs that the global economy has a bit of momentum, but they also highlighted the global risks of which there are many.

“But, on the domestic front they are downplaying the weakness in GDP growth we saw at the end of last year and putting it down to temporary factors.

“As for the housing market, they noted house price growth has moderated but they are cautious about how long the slowdown will continue.

“That’s because supply constraints remain and they are likely to keep a floor under prices.”

ASB expects the OCR to remain on hold for some time and doesn’t think there will be a hike until late in 2018.

Tuffley added that, given the limited change in the statement’s overall tone and outlook, market reaction this morning was extremely limited.

“The NZD is very slightly weaker following the release, but there was no discernible reaction in interest rate markets.”

This lack of surprise was the consistent theme of economist responses to the OCR announcement.

ANZ chief economist Cameron Bagrie said the Reserve Bank’s decision and statement was essentially a repeat of February.

“So it’s business as usual and the OCR will be on hold for some time yet.”

Bagrie said there were a few small tweaks to the Reserve Bank’s overall economic assessment but nothing major.

“The Reserve Bank’s message is move along – nothing to see here.”

NZIER senior economist Christina Leung agreed the Reserve Bank’s OCR call was entirely in line with expectations.

“The statement covers everything with the Reserve Bank indicating it is not worried on the GDP front, although it has been softer than expected, and expressing ongoing caution about the housing market.”

They did emphasise the heightened global uncertainty – while indicating there is a bit of momentum in the global economy, she said.

“So it is the potential global risks that are worrying them rather than any actual activity.”

But the Reserve Bank has basically said they will keep interest rates low for some time, she said.

Westpac acting chief economist Michael Gordon also said the Reserve Bank’s announcement was as expected, with their bottom line remaining unchanged.

The Reserve Bank remains unconvinced that the recent slowdown in the housing market will be sustained, he said.

“In contrast, we think that higher mortgage rates will have a lasting impact on house price growth, and that, in turn, will have implications for the strength of domestic demand and inflation pressures.”

He said Westpac’s view remains that the OCR will stay on hold through 2017 and 2018.

“Like the RBNZ, we regard some of the recent price pressures as temporary, and we expect annual inflation to linger in the lower half of the 1-3% target range over this year.”

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