Applause for OCR call

Thursday 10 May 2018

New Reserve Bank Governor Adrian Orr has earned plaudits from economists for his first OCR announcement this morning – even though the decision itself was not a surprise.

By Miriam Bell

As expected the Reserve Bank kept the OCR on hold at its historic low of 1.75% and also retained its neutral bias.

But the way in which both the OCR announcement and the Monetary Policy Statement (MPS) were laid out and delivered has changed and economists say the changes are for the better.

ASB chief economist Nick Tuffley says there was little change in the outlook for the OCR and interest rates in this morning’s statement.

Yet the way the OCR and MPS messages were delivered meant there was much greater clarity as well as a swiftly digestible message.

The overall message from the statement is very similar to the previous statements, even with the new Policy Targets Agreement (PTA), he says.

“The Reserve Bank’s OCR forecasts changed very slightly, for example, so the point at which the OCR starts rising was pushed out a quarter but is still consistent with a late 2019 start to OCR increases. 

“But the presentation is now being done in a way that makes the Reserve Bank’s messages more transparent, much clearer and less vulnerable to misinterpretation. 

“Importantly, the Reserve Bank’s thinking is going to be much more readily digestible by a broader range of people. We give Adrian Orr and the Reserve Bank plaudits for this change.”

Overall, ASB continue to expect the OCR to remain on hold until at least August 2019 as there remains no urgency for it to go up (or down) for some time, he adds.

Independent economist Cameron Bagrie says there was no surprises in the OCR decision itself but agrees the method of communication has substantially changed – and for the better.

He says Orr is an outstanding communicator and this was evident in the way the OCR announcement and the MPS were structured.

“A very different communication style is apparent, with both statements a lot more direct, straight to the point and readily understandable.

“It seems the Reserve Bank has finally realised communication rule 101: get your key messages up front – so the OCR decision and the bias are right up the front, which is what the market wants.”

For Westpac’s head of NZ strategy, Imre Speizer, this morning’s MPS did surprise markets a little with a slight dovish shift.

“It kept the OCR on hold at 1.75%, as was widely expected, but notably allowed for the OCR to move ‘up or down’, rather than simply on hold. This is a slightly dovish development in our view.”

But Westpac expects the Reserve Bank to keep the OCR on hold for a considerable period, with the OCR forecasts implying no hike until late next year – although this forecast is subject to uncertainty.

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