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RBNZ to talk up negative OCR: preview survey

The Reserve Bank is expected to keep the OCR on hold this week, but could highlight the growing chance of a negative central bank rate. 

Monday, September 21st 2020

TMM Online's latest Monetary Policy Review preview survey finds economists unanimously predict interest rates will stay on hold. 

Yet with the global fallout from Covid-19 predicted to take its toll on the economy, and NZ reeling from its worst ever fall in GDP, the Reserve Bank is expected to talk up the odds of a negative official cash rate. 

All of the economists surveyed by TMM Online predicted rates would stay on hold, with an 80%-100% probability. 

They expect the central bank to err on the dovish side amid recent weak data. 

NZIER's Christina Leung expects "a more dovish assessment of the economy", with "an indication about a negative OCR" expected from the RBNZ's statement. 

Independent Tony Alexander also expects comments regarding a negative OCR. He doubts whether the central bank rate has troughed in this cycle.

Kiwibank economist Mary Jo Vergara expects the Reserve Bank to "relax their language around the path of the OCR": "In recent months, a negative OCR has gone from possible to probable. The market is certainly pricing it in, as early as February even," she added.

Donal Curtin of Economics NZ has revised his forecast for the central bank rate, and now predicts a negative OCR next year. 

"I'm now in the negative OCR camp,  a cut first half of next year looks on the cards," he said. 

A negative official cash rate is one of many monetary policy tools being considered by the Reserve Bank. The RBNZ is expected to introduce a direct term lending facility for the banks alongside a negative rate, meaning cheaper borrowing costs for retail banks. 

Mortgage rates, or term deposit rates, are unlikely to fall to negative territory as a result of a negative OCR. Yet many economists, including the team at ASB, say home loan rates could drop to 1.5% next year, if the Reserve Bank implements the unconventional monetary policy. 

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