PHOTO: The Reserve Bank of New Zealand (RBNZ)
Impending OCR Update: Home Loan Borrowers Await Decision
Anticipated Relief for Home Loan Borrowers as Official Cash Rate Hike’s Pause is Expected
This week, there is a prevailing belief among economists that home loan borrowers may be spared further official cash rate (OCR) increases, but the possibility of another hike before the year’s end remains on the horizon.
OCR Update on the Horizon
The Reserve Bank is scheduled to provide an update on the official cash rate (OCR) this week. The OCR has seen a significant climb from its pandemic low of 0.25% to its current level of 5.5%.
The Reserve Bank has indicated that this is likely to be the peak, a measure aimed at curbing inflation. However, not all economists are convinced of this outlook. Some, like Kelly Eckhold, Chief Economist at Westpac, and Sharon Zollner, Chief Economist at ANZ, anticipate the need for another increase in November.
Conversely, opinions are divided among economists regarding the next step. Some suggest a rate cut, with Kiwibank’s Chief Economist, Jarrod Kerr, proposing an early cut in February, while Zollner and even the Reserve Bank itself predict a reduction towards the end of the year.
Mike Jones, Chief Economist at BNZ, foresees the OCR remaining steady in the upcoming week, aligning with the Reserve Bank’s expectations for its trajectory. Jones states, “It’s largely in line with the Reserve Bank’s projections. We believe a period of OCR at 5.5% is the most probable outcome.”
He adds, “While it’s not our primary outlook, there’s a scenario where the bank might need to resume rate hikes. On the flip side, an early easing scenario is equally plausible. If inflation persists and necessitates further OCR hikes later in the year, we could witness at least two additional increases.”
Interestingly, house prices have exhibited a slower decline than initially anticipated by the Reserve Bank. Previous projections suggested continued drops into the following year. While non-tradeable inflation exceeded expectations, recent data indicates that food price increases are easing faster than predicted. Moreover, concerns about the Chinese economy have affected the outlook for the primary sector.
“Overall, it appears the economy’s momentum is waning,” observes Jones. “Addressing inflation pressures remains challenging, but the direction is now favorable.”
According to Kerr, minimal changes are expected this week. He notes, “It’s a waiting game now. The message should remain relatively consistent.” Kerr’s forecast points to an OCR cut in February, based on the typical timing for the Reserve Bank to ease policy after the end of a tightening cycle.
He elaborates, “This emphasizes the time it takes for monetary policy to fully take effect.” Kerr believes that the Reserve Bank will gain a clearer understanding of the situation by Christmas and will face a significant decision in early 2024.
Chief Economist at Westpac, Kelly Eckhold, emphasizes the diverse range of factors the Reserve Bank must consider. She highlights that while certain factors point to potential future rate hikes, negative elements like reduced milk prices and a deteriorating Chinese outlook could impact this direction. She expects the Monetary Policy Statement (MPS) to acknowledge these risks, possibly shifting from a stance of ‘on hold’ to a more data-oriented approach.
Eckhold’s prediction suggests a peak of 5.75% in November, followed by cuts in 2024.