RBNZ: OCR to stay on hold for some time yet, but the next move is likely to be up - Westpac

Analysts at Westpac suggests that with inflation back in the target band and some downside risks abating, the RBNZ has shifted away from its earlier modest easing bias, and adopted a neutral stance at the time of the February Monetary Policy Statement.

Key Quotes

“We still expect that the Official Cash Rate will remain on hold at the current record low of 1.75% for quite a while longer. To offset the weakness in imported prices and generate a rise in domestic inflation, the Reserve Bank needs domestic spending and investment to continue trucking along. And that will require continued support in the form of low borrowing rates.”

“But while the OCR is on hold for now, if the economy continues tracking the way it has recently, the next move in rates is likely to be up.  We don’t expect to that to happen quickly, with the first rate hike not pencilled in until early 2019. Even then, rate hikes are expected to be gradual. Inflation is expected to linger in the bottom part of the target band for much of the next two years even with the OCR at a record low, and GDP growth is expected to moderate through the latter part of the decade.”