Date of the Official Cash Rate Set to Change

10 August 2011 - Which Way to Pay

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Date of the Official Cash Rate Set to Change

BNZ economist Stephen Toplis and Westpac’s chief economist Dominick Stephens have forecasted that the Reserve Bank’s next Official Cash Rate (OCR) will be in December rather than the previously predicted September. This change in outlook can be seen as a direct response to the current turmoil in global financial markets.

ANZ chief economist Cameron Bagrie believes that the OCR will stay put unless the global environment dramatically improved and said ANZ was still picking at a September hike. Westpac’s Dominic Stephens has forecasted a 25 basis point hike in OCR in December as supposed to Toplis’ prediction of a 50 base point hike. The Governor of the Reserve Bank, Alan Bollard indicated on July 28 that he would remove the March OCR “insurance cut” from 3% to 2.5%. This plan was a short-term adjustment if conditions in the New Zealand economy continued to improve, and if global financial risks receded. However, with Standard & Poor’s downgrade of the US sovereign rating late last week, fresh fears about a global recession have been fuelled. Indeed, markets read the “insurance cut” as a 50 basis point hike in the OCR on September 15, although that pricing has now fallen away again.

As the head of research at BNZ, Stephen Toplis commented that the bank’s economist had been “beaten into submission” and that the Reserve Bank would delay its removal of the “insurance cut” from March until December, albeit unless global markets rebound from the present turmoil.

Moving the expectation to December rather than October is preferred because of the Monetary Policy Statement with a media conference occurring in the later month. Also, October falls immediately before the General Election on November 26.

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