ANZ predicts fewer OCR cuts

The central bank rate is currently at 0.25% following emergency cuts in the wake of the Covid-19 pandemic. With the economy limping along, economists are divided on whether the Reserve Bank will slash the OCR to zero, or into negative territory.

ANZ, until now, had predicted negative rates next year, but the bank's team of economists, led by Sharon Zollner (pictured), have changed their minds.

They predict the OCR will be cut in May, but say the central bank will avoid negative rates.

ANZ's team believe monetary policy measures, such as slashing the OCR, a Funding for Lending Programme, and quantitative easing, have done their job in stimulating the economy.

Positive developments with a Covid-19 vaccine, strong commodity prices for NZ exports, and the successful elimination strategy are further reasons to suggest the RBNZ won't need to cut the OCR much further, Zollner and co said.

ANZ also noted a stronger medium term inflation outlook.

While the bank is predicting further cuts, it says the RBNZ could opt to keep rates as they are.

"If the housing market and domestic economy maintains momentum well into autumn, the RBNZ will not cut again at all," the team said in its latest report. "If Covid-19 returns to our shores in a significant way, a negative OCR will once more be game on."

"We expect the RBNZ to maintain a dovish bias for a long time yet in order to head off any premature tightening in monetary conditions that would undermine improvement in inflation and the labour market," the team added.