OCR Preview Survey: economists say OCR will stay on hold

Friday 7 February 2020

The official cash rate will stay on hold next week, but the Reserve Bank will urge downside caution over the impact of the coronavirus, according to TMM's OCR Preview Survey.

The survey of leading New Zealand economists reveals 100% of commentators believe the OCR will stay on hold next week, amid signs of green shoots in the economy and rising house prices.

However, the coronavirus is likely to have an impact on China's major trading partners, including New Zealand. The virus, which has spread rapidly over the past few weeks, could force the Reserve Bank to adopt a more negative outlook on the economy. 

Economists believe there is a 75%-99% chance the OCR will be kept on hold next week. A total of 78% of economists believe the OCR will fall further this year, while 22% say it won't fall any further in this cycle. 

The coronavirus is expected to be a fly in the ointment for the NZ economy, and a negative shock for economic growth. 

Economists believe it is the main issue to look out for amid next week's MPS and OCR announcement. 

Independent economist Michael Reddell says markets should "expect a move to a conditional easing bias, almost wholly on back of coronavirus risk – a classic negative demand shock, but uncertain as to size and duration". 

ANZ's Sharon Zollner (pictured), expects the central bank to "acknowledge the stronger domestic picture that would have normally made them very comfortable sitting on the side-lines. However, they will acknowledge the human impact of the tragic new coronavirus, with cautious language about possible risks to the economic outlook".

Tony Alexander believes "they [the RBNZ] will note a new bias toward cutting in light of the coronavirus effect". 

Brad Olsen, an economist at Infometrics, adds: "We expect the Reserve Bank will note that it stands ready to provide even more accommodative monetary policy if conditions warrant, particularly in response to a further slowdown in global growth. 

"The Reserve bank will also likely make a firm statement about its monitoring of the coronavirus outbreak, and that it is prepared to step in should the economic picture deteriorate due to the impact of the virus on New Zealand trade and general economic position," Olsen added.

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