31 Jan 2020 |
There or there abouts – Update on the OCR outlook
Westpac’s economics team have updated their thoughts on the outlook for the OCR.
The outlook reflects the more positive economic environment (the US-China trade agreement, Brexit decision, NZ economic & inflation outlook) which suggests a more neutral stance is likely coming from the RBNZ. So whilst the RBNZ will remind us of the uncertainties that are always with us, most notably coronavirus currently, they have now likely moved to a very neutral stance, and on hold in line with the other influential central banks of the US, UK and Australia.
The key summary points are as follows:
- The RBNZ may shift to a neutral OCR outlook at the February MPS.
- Previously, the RBNZ implied there was a 50/50 chance of an imminent OCR cut.
- We think the RBNZ will shift to saying that it “expects to keep the OCR on hold but will react to the data as necessary”.
- The RBNZ’s OCR forecast is likely to be flat at 1.0%, compared to the previous 0.9%.
- Recent strong housing and economic data, as well as the announcement of a large increase in government infrastructure spending, will prompt the RBNZ’s change of stance.
- This is all based on what we know to date. The coronavirus and data next week on the labour market and inflation expectations are key uncertainties that could change the outlook.
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