No sign of OCR increases: Economists

It was revealed yesterday that the CPI contracted 0.2% in the final quarter of last year, bringing annual inflation to 0.8%, below the Reserve Bank’s target band.

Bank economists said that meant borrowers with home loans would not need to worry about interest rate rises any time soon.

Westpac’s economists said they expected inflation to stay below 1% until the end of this year.

They said that would keep the OCR on hold until June 2016 – although the prospect of a hike was so distant that it was a red herring to discuss exactly when it might happen.

They said debate should turn to whether the Reserve Bank would cut the OCR this year. “We regard cuts as unlikely but not unthinkable.”

ASB agreed inflation would be low throughout this year and not move beyond 1% until the last quarter. The bank’s economists said housing costs were the only area where inflation was picking up.

“Given how long inflation has been low, we judge it is increasingly unlikely that the RBNZ will lift the OCR in 2015. Increasingly, the case for a higher OCR is about if, not when, rates go up. We think the balance has tipped to the OCR remaining on hold over the next couple of years and we have changed our OCR view to now expect no OCR increases for the foreseeable future.”

BNZ said it had expected low CPI and had pushed out its forecast. BNZ’s economists have pencilled in three hikes next year, in March, June and September.

JP Morgan said the CPI data supported its revised forecast of an OCR hike in the first quarter of 2016 instead of mid-to-late this year.