RBNZ Shocks Market with Forecast of Rise in OCR


Rates as of 0500 GMT

Market Recap

Boy was I wrong about the Reserve Bank of New Zealand! Not necessarily about what they would decide, but about the impact on the market. As expected they kept all their policy settings intact and even their forecasts were little changed they said Overall, our mediumterm outlook for growth remains similar to the scenario presented in the February Statement.

However, there were two small changes that made a world of difference.

One, in the last paragraph, the one with the forward guidance, they dropped the sentence that read, The Committee agreed that it was prepared to lower the OCR if required. OCR official cash rate, the RBNZs policy rate This was perhaps in line with their assessment that Confidence in the outlook is rising as the more extreme negative health scenarios wane given the vaccination progress globally.

Secondly, the Monetary Policy Statement MPS reinstated their longstanding practice of publishing an OCR projection. Since May 2020 they had been publishing no numerical forecasts but just a graph of an unconstrained OCR, which is a theoretical OCR based on what it would be if the OCR could be at any level. The key point is that while in February the graph showed the OCR going negative for a few years before finally returning to zero, now the official forecast is for a rate hike in Q3 next year to 0.5 from the current 0.25, rising to 1.8 one assumes 1.75, but they round it off to one digit by Q2 2024.

This is of…


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