OCR Preview Survey: OCR set to remain on hold

Monday 22 June 2020

Economists expect the Official Cash Rate to remain on hold this week, but say the Reserve Bank could talk about negative rates in 2021.

According to TMM Online's OCR Preview Survey of leading economists, all forecasters say the OCR will remain at 0.25% on Wednesday. 

Amid the sharp economic downturn caused by Covid-19, the Reserve Bank has reiterated the OCR will not be changed until early next year. 

Economists do not expect a surprise on Wednesday, but say there are key messages to watch out for. 

Tony Alexander is keeping an eye on any comments "regarding the economic outlook, and if they have become marginally less pessimistic", while ANZ's Sharon Zollner is watching "the implicit impact on their forecasts of the earlier exit from lockdown than they had assumed".

The central bank could also mention a possible expansion of its quantitative easing programme. Jarrod Kerr of Kiwibank believes the LSAP programme is "the most useful" tool in this crisis, and says "the RBNZ will be forced to do more to get the economy humming into 2021.

The prospect of a negative OCR could be another key talking point.

NZIER's Christina Leung said the Reserve Bank would "continue to leave the door open to negative interest rates next year", while Donal Curtin of Economics NZ said "it's possible they might signal a willingness to go to 0 or even negative once the current 'technical difficulties' with negative rates have been solved".

The Reserve Bank has given trading banks several months to prepare for the possibility of negative rates if the economy worsens. 

Economists are divided over whether the Reserve Bank will pull the trigger on negative rates next year. 

Tony Alexander, ANZ's Sharon Zollner, ASB's Nick Tuffley and Leung are among those who believe the OCR has troughed in this cycle. 

Yet others, including Curtin, say there is a strong chance of negative interest rates in the medium term. 

Curtin described the odds as "50-50", while Prashant Newhana of TD Securities said a second wave of Covid-19 "would push the RBNZ to cut next year". 

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