Economists revise OCR outlook

Monday 16 December 2019

Leading economists have revised their predictions for the official cash rate next year, predicting less action from the Reserve Bank in the next 12 months.

Westpac's Dominick Stephens no longer expects an OCR cut in February or at any point in the first half of 2020, amid positive signs from the economy and housing market. 

"The New Zealand economy and housing market have lived up to our more constructive forecasts and then some," Stephens said.

The bank expects conditions to deteriorate through 2020, forcing the RBNZ to cut the OCR to 0.75% in August. 

"Our OCR forecast strikes a balance within a spectrum of possibilities. We could easily envisage the OCR remaining at 1% all year or falling to 0.5%, depending on the data," the Westpac economist said.

Kiwibank economists agree. The bank now expects a cut in August, amid a "little brighter" outlook for NZ GDP and the housing market.

BNZ economists say the "fundamental case for OCR cuts has diminished significantly" over the past few months. 

"NZ business confidence has shown signs of bottoming, the housing market is experiencing an upturn, the RBNZ will need to take account of the government’s spending plans," BNZ economists, including Stephen Toplis, said.

ASB economists still expect a May OCR cut, but admit "the risk is clearly rising that the RBNZ is done". 

In their latest report, ASB said it expects the OCR to remain at 0.75% from May next year until 2022, when "gradual hikes" are likely to occur. 

ANZ economists also expect a cut in May. They expect "there's still a bit more work for the RBNZ to do to support employment and inflation expectations".

The economists say domestic inflation figures could tip the balance for the Reserve Bank next year. 

"If downside global risks don’t materialise, we’re expecting that by May the RBNZ will realise that inflation is still not heading sustainably up to the 2% target midpoint, and to cut the OCR once more. But it remains a story of growth just not quite delivering what the RBNZ needs to be confident of hitting its inflation target, not a tale of woe and despair."

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