ASB does U-turn, now expects no change in OCR

ASB now expects the Reserve Bank to keep its offical 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.

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

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

“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,” they said.

“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,” ASB said.

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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