It’s been called the "economists' super bowl", so will tomorrow’s OCR announcement and monetary policy statement deliver a touchdown, and what will it mean for you?
It’s been called the “economists’ Super Bowl”, so will tomorrow’s OCR announcement and Monetary Policy Statement deliver a touchdown, and what will it mean for you?
What is the OCR?
The OCR or Official Cash Rate is the wholesale interest rate used by banks.
When it goes up or down, it becomes more expensive or cheaper for them to borrow money.
It’s important because the OCR then dictates the interest rates you pay on a loan, and any extra costs or savings made by banks are usually passed on to us.
The Reserve Bank uses the OCR to control inflation. When inflation is high, it increases the OCR to make money more expensive and people less likely to spend.
Right now, inflation is sitting at 3.3%, just shy of the Reserve Bank’s (RBNZ) target range of 1% to 3%.
The reason why tomorrow’s OCR announcement is such a big deal is because after holding the Official Cash Rate steady at 5.5% since May last year, some are picking it could finally come down. But opinion is divided.
Reserve Bank of NZ Governor Adrian Orr in February agreed to hold the official cash rate (OCR) at 5.50%. Photo / Mark Mitchell.
What are the major banks predicting?
ASB
ASB is one of the boldest of the bunch, predicting a 25-basis-point (bps) cut tomorrow, and the same for subsequent announcements this year.
“We acknowledge it is a line-ball call, with forecasters split on the outcome, but that is the decision the RBNZ is now likely to make.
“The biggest room for regret has quickly moved to holding interest rates too high for too long, with long-held concerns about easing too soon fading rapidly.”
BNZ
BNZ is much the same, tentatively pointing to a drop – saying the RBNZ can either cut now, or wait and be forced into a 50bps cut in November.
It referenced the RBNZ’s use of the word “tempered” in its July monetary policy review.
“‘Tempered’ to us implies steady and guarded rather than knee-jerk, hence, our expectation of an earlier and more regular move than a panicked late response.”
ANZ expects the OCR to hold steady at 5.5%, with potential cuts later this year.
“While we certainly wouldn’t rule out a cut next week, it is difficult to justify such a radical change in the RBNZ’s thinking based on the evolution of data in recent months.”
KIWIBANK
Kiwibank doesn’t think the RBNZ will budge tomorrow, but believes it should and recommends a cut at every meeting until the OCR hits 2.5%.
Kiwibank said restrictive monetary policy had “inflicted much pain and tamed the inflation beast”.
Westpac is also playing it safe, predicting the OCR will hold.
“We expect a significant revision in the forward view for the OCR consistent with potential easing in October and November, leaving the year-end OCR at 5%.”
