OCR likely to remain unchanged
THE Reserve Bank will be in no rush to shift its official interest rate at its review tomorrow , preferring instead to take a waitandsee approach to assess how the economy is adjusting to the challenges posed by Covid19, economists say.
Market expectations are for the central bank to leave the official cash rate (OCR) at the current record low of 0.25%.
Likewise, the market does not expect any changes to the overall size, duration and general terms of the funding for lending programme — cheap money for banks — and its largescale asset programme, which is aimed at keeping interest rates low.
‘‘The Reserve Bank is likely to play with a straight bat, reiterating its ‘wait and see’ and ‘least regrets’ approaches to policy,’’ ANZ chief economist Sharon Zollner said.
‘‘The data flow is starting to soften but this is consistent with forecasts by the Reserve Bank and ANZ that harder yards lie ahead for the economy,’’ Ms Zollner said in a report.
The Government’s housing tax policy changes announced last month represented a new downside risk for their economy, she said, but there were upside risks for both activity and inflation as well, including the transtasman travel bubble.
The Reserve Bank, and central banks around the world, have been in an arm wrestle over when exactly economic stimulus measures are likely to be pared back.
Last month, the New Zealand dollar weakened in reaction to the Government’s announcements on housing, which have been seen in the market as taking the pressure off the Reserve Bank to act on an overheated property market.
While much of the announcement was anticipated, particularly the extension of the ‘‘bright line’’ test to 10 years from five, the move to eliminate the tax deductibility of interest on property investment was not.
The moves put the brakes on the trend of a strengthening currency and bond yields.
‘‘I think the Government’s announcement on housing has seen the market pushed back a little bit,’’ ASB senior economist Mike Jones said.
Even as the dust settled, twoyear swap yields have still come back by 10 basis points and by 30 basis points for the 10 years.
However, these moves have not played a big part in changing the market’s OCR expectations, which point to rate hikes in the middle of 2022.
Westpac senior economist Michael Gordon said the message communicated at the Reserve Bank’s monetary policy statement in February, that meeting its inflation and employment requirements will necessitate ‘‘considerable time and patience’’, will get another airing tomorrow.
‘‘We expect that message to be more or less repeated,’’ he said. — The New Zealand Herald