OCR reaction: economists surprised but expect 2020 cut

Wednesday 13 November 2019

Economists were surprised by the Reserve Bank's decision to keep the official cash rate on hold, but expect the central bank to ease rates next year.

The OCR remains on hold at 1%, as the Reserve Bank unveiled its latest decision and Monetary Policy Statement. 

The decision was a close call. According to the central bank's meeting notes, the Monetary Policy Committee "noted that the risks to the economy in the near term were tilted to the downside and agreed it would add further monetary stimulus if economic developments warranted it".

Westpac's Dominick Stephens expected a cut following weak inflation data earlier this week. He said the decision to hold showed the RBNZ was "not scared of staring down financial markets". 

"We always viewed it as a close call, and that's what the RBNZ said. In our view, the low point in the OCR cycle will be 0.75%," Stephens added. "There are a couple of things on my mind, the housing market is likely to be much stronger than the Reserve Bank is forecasting. On the other hand, I wouldn't be surprised if the global economic situation worsens before then. The balance of those two will decide whether there's a move in February."

Kiwibank's Jarrod Kerr said he was "surprised" by the move, and that the Reserve Bank left the OCR track unchanged. 

"They have given us the same 40% chance that another rate cut will be needed. They have said if things deteriorate they will keep cutting, but that they didn't have enough information to go lower today. We thought we had seen enough."

Brad Olsen of Infometrics said the central bank would wait to see whether its August cut was deep enough.

Olsen added: "The Reserve Bank has stuck to its guns this month and seems to be waiting and hoping that August’s 50 bp cut is enough to stimulate the economy. The Bank’s made it clear that it is prepared to cut again if conditions dictate."

Independent economist Michael Reddell hit out at the decision to keep rates on hold. 

"Inflation below target, risks to the downside, world economy still slowing, low or falling inflation expectations, all combine to make a strong case for a cut. But they sit on their hands. It is a poor decision and two successive MPSs in which they have wrong-footed markets suggests the problem is with them not the markets. They need to rethink their comms approach."

Comments from our readers

No comments yet

Sign In / Register to add your comment

Property News

Covid be damned – the market is booming

Those who were anticipating a Covid-prompted housing market collapse got it wrong with the latest REINZ data revealing strong growth in prices and sales.

House Prices

High demand keeps pushing prices up

Treasury might be expecting house prices to fall - but market data suggests otherwise, with Trade Me Property’s August data the latest to show rising prices and high demand.


Augusta Capital takeover bid now unconditional

ASX-listed Centuria Capital has declared that its takeover of New Zealand property funds manager Augusta Capital is now unconditional, as it has secured nearly 66% of Augusta’s shares.


Borrowing boom in July – before second lockdown

Home lending soared to $6.5 billion in July during New Zealand's Covid-free period, reaching its highest level since November last year.

Site by PHP Developer