The LoanMarket Update

OCR Preview Survey: Economists predict cut

A majority of New Zealand economists predict the Reserve Bank will cut the Official Cash Rate to a new record low of 1.50% next week, according to TMM’s Preview Survey.

A total of 62% of economists told TMM they believe the Reserve Bank’s Monetary Policy Committee will slash the central bank rate next week.

It comes after Governor Adrian Orr shifted to an easing bias in March, amid weak growth and inflation numbers. The Monetary Policy Committee, which has a mandate to keep employment numbers sustainable, is also likely to be influenced by soft labour data this week.

Economists were not 100% certain on the OCR cut. They give a cut a probability of between 60%-70%. About 38% of economists think there will be no change at all. Almost all of the economists who responded to TMM believe the bank will signal a slower inflation and interest rate track.

Kiwibank chief economist Jarrod Kerr believes we will see a cut next week, and a second one in August, bringing the OCR to 1.25% by the end of the year. He believes the Reserve Bank will adopt a more downbeat outlook.“The last MPS in February was very even-handed, with upside and downside risks equally weighted. The OCR announcement in March showed a clear shift to the downside. The balance of risks will have to be weighted down in the new set of forecasts and OCR track.”

Robin Clements of UBS also expects a 25 basis point cut, and expects “guidance implying further cut(s) possible”. Nick Tuffley of ASB, who also predicts a cut, believes the Reserve Bank Governor Adrian Orr will comment “that a lower OCR is needed to ensure medium-term inflation returns to 2%”.

Brad Olsen, of Infometrics, says the MPC will “highlight concerns over business investment weakness as a core concern”, after making a cut next week. “Not only is actual investment low, but the outlook for future investment is severely lacklustre,” he added.

Some predict no changes next week. Christina Leung of NZIER says the Reserve Bank will keep its easing bias but stick to the 1.75% rate. While Annette Beacher says “We see [rates] on hold, as the data won't turn one way for the RBNZ to cut”.