Why economists are betting on the OCR holding steady today
RBNZ set to keep cash rate steady
The Reserve Bank is widely expected to push pause on its series of cuts when it announces its latest Official Cash Rate (OCR) decision today. After six consecutive cuts since August last year — slashing the OCR from 5.5% to its current 3.25% — economists say the mood has shifted. ANZ's Sharon Zollner describes the call as a 'very close-run thing', giving odds of around 40% that the bank will cut. But the consensus is that acting governor Christian Hawkesby and the monetary policy committee will leave rates unchanged for now, Newsroom's Andrew Patterson reports. Financial markets are putting the chance of a cut today at under 20%, with a much stronger expectation that any move will come at the next review in late August.
Mixed signals cloud the outlook
As Interest's David Hargreaves explains, the Reserve Bank faces a complex set of signals. On one hand, GDP for the March quarter outstripped forecasts, rising 0.8% – double what the RBNZ predicted in May. But more recent indicators look weaker: retail spending remains soft, business sentiment surveys are downbeat, and the unemployment rate appears to be nudging higher. Bernard Hickey points out in The Kākā that the Reserve Bank's new 'Kiwi-GDP nowcast' shows GDP falling back into recessionary territory over the last three months. (See the graph here).
Meanwhile, inflation remains stubborn in key areas like food, where prices climbed 4.4% in the year to May. Many bank economists still see annual inflation running slightly above the RBNZ's target range of 1%–3% for the next quarter or two. 'If it's short term that's not really a problem,' Hargreaves writes. 'Where it becomes a problem is if the public starts to expect future inflation and begins to act accordingly.' For the Reserve Bank, the risk is that high prices for groceries and other essentials could reignite those dreaded 'inflation expectations' – something it worked hard to rein in after inflation spiked to over 7% in 2022. That risk alone makes another cut today unlikely.
Modest gains for mortgage holders
For homeowners, the likely pause means no big drop in mortgage rates in the short term, reports Taylor Rice of 1News. Average rates have already fallen significantly as the OCR has come down: the typical floating rate now sits at 6.92%, while the average one-year and two-year fixed rates are both just over 5.6%. Infometrics' Brad Olsen says he continues to believe that 'mortgage rate cuts have largely run their course' unless the economy deteriorates further. Still, plenty of homeowners who fixed at higher rates are about to refix at these lower levels, offering some relief for household budgets.
Such a modest boost for borrowers doesn't look set to spark a fresh housing boom. Asking prices are trending down across the main property platforms, Interest's Greg Ninness reports. Realestate.co.nz saw a 3% drop in national asking prices last month alone, while Trade Me Property shows three straight months of declines. Combine plentiful listings with rising caution about job security, and economists see little chance of prices taking off anytime soon.
Household inflation data back this October
Meanwhile, The Post's Kelly Dennett (paywalled) reports that Stats NZ's long-delayed Household Living-Costs Price Index (HLPI) will finally return in October, releasing figures for the March, June and September quarters all at once. Stats NZ says 'technical data-processing challenges' are to blame for the extended delay. Unlike the Consumer Price Index (CPI) – the RBNZ's main target for monetary policy – the HLPI measures cost pressures faced by different household groups such as superannuitants, beneficiaries and Māori households. Its return will help officials get a clearer picture of who is feeling the pinch and how. A RBNZ spokesperson said it would welcome the HLPI's return, but the pause had not compromised the bank's ability to do its job.
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