Source: Radio New Zealand
ANZ said it was not a given that hiking the OCR would prove to have been the right thing to do in the fullness of time. RNZ
ANZ, New Zealand’s biggest bank, says it now expects three official cash rate (OCR) increases this year – in July, September and October.
But it also said it only expected the rate to lift to 3 percent, from 2.25 percent currently – not the 3.5 percent it expected previously.
ANZ chief economist Sharon Zollner said the most recent update from the Reserve Bank (RBNZ) had made the point that it expected to need to increase the rate if various conditions were not met.
“I think that was fair to interpret that as deliberate, and certainly the media appearances and the press conference gave the impression of more focus on inflation than on near-term growth.
“Or at least taking the longer-term view on growth, that a little bit of short-term pain might be worth it for a long-term gain, that kind of argument.
“We don’t have a strong view on July versus September. But we do have a pretty strong view that hikes will come before our previous call of December.”
She said she expected the rate to not need to go as high because it would be hard on the economy.
“Even though the OCR will still be low, in inverted commas, we think [increases] could be pretty powerful because confidence is weak and this is a negative income shock.
“You’re kicking the economy when it’s down, essentially. That’s why, in exchange for earlier hikes, we now see the OCR stopping earlier.”
Home loan rates could move higher, she said.
Wholesale rates have been moving up in the past week on news from the Middle East conflict.
“It started to move because of what’s happened in the Middle East and the fact that the peace talks didn’t go well.
“Now even the few boats that were getting through the Strait are going to struggle to do so … if things continue to move in that direction, then we could see some more upward pressure on mortgage rates potentially.”
ANZ said it was not a given that hiking the OCR would prove to have been the right thing to do in the fullness of time.
“The demand-side hit from this negative national income shock should not be underestimated; nor should the tightening in financial conditions already seen. However, the RBNZ committee will not want to repeat the mistake of the Covid era, when policy was kept too loose for too long.”
Zollner said the uncertainty of the outlook could not be over-stressed.
“A July kick-off for hikes is not a high-conviction view; it is just what we currently see as the single likeliest timing as we stare into the murk. Take everyone’s forecast with a generous pinch of salt – including both ours and the Reserve Bank’s. That’s just the world we find ourselves in.”
ASB has also revised its forecast. Its economists said they expected the OCR to rise in September, to an end point of 3.25 percent mid next year.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
