Major banks do U-turn, now expect no change in OCR

New Zealand’s major banks are changing their tune on whether the Reserve Bank will change the OCR today.

ASB said it now expects the Reserve Bank to keep its official cash rate (OCR) unchanged at 0.25 per cent following yesterday’s news of a case of the Delta variant of Covid-19 and the consequent level 4 lockdown.

The bank had previously expected a 25 basis point gain from today’s monetary policy statement, which is due out at 2 pm.

Westpac has also updated its expectations to “no change”.

“Regardless of the economic case for higher interest rates, there is nothing to be gained from pushing the OCR higher now, rather than waiting for more clarity on the Covid situation,” the Westpac team said.

Most economists had also forecast a gain, and market pricing had heavily favoured a rise.

ASB’s economists said: “We expect the Reserve Bank will opt to keep the OCR on hold, rather than lift it.

“A suspected community Delta Covid case (and four infections linked to it so far) and the snap Level 4 lockdown mean the Reserve Bank is making a decision in the blind about the extent of the outbreak.

“Assuming the lockdown is relatively short, we’d expect the RBNZ to lift the OCR from October.

“Given that New Zealand has entered into a snap Level 4 lockdown it is logical that the RBNZ will pause until more certainty over the extent of the community COVID outbreak and lockdown is established.

“With the Government stepping in with financial support, it also makes little sense for the RBNZ to work in the opposite direction by triggering a lift in borrowing rates.”

Provided the lockdown is short and doesn’t change the underlying economic picture, the bank still anticipates the OCR reaching 1.5 per cent by the end of 2022.

“But the situation is still very fluid,” it said.

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