Experts split on interest rate hikes

Who's expecting rates to rise?

Experts split on interest rate hikes

The Reserve Bank expressed confidence in May that the OCR has peaked at 5.5% and would begin to ease towards the end of 2024 – but that was before the release of a slew of stronger-than-expected economic data, boosted partly by record immigration.

BNZ and Infometrics forecast that if RBNZ does lift rates, it won’t just be a single 25-basis point rise, with the OCR expected to hit 6% – a level reached or breached for just five-and-a-half years in the past 25 years.

Now, with the next review set for Oct. 4 and central bank’s final monetary policy statement (MPS) for the year to be issued on Nov. 29, experts are divided on whether the OCR will increase further and inflict more pain on already-struggling mortgage holders, Stuff reported.

So, how do the experts line up?

Yes, interest rates will still go up

ANZ, the nation’s biggest bank and one of the most influential forecasters, has long been flagging a higher OCR, and has been more doubtful than most about the progress of curbing inflation.

Miles Workman, ANZ senior economist, said the bank expected the OCR to remain steady at the October review, but rise to 5.57% in November.

Westpac, which has proven the most “on the money” in its economic growth forecasts in the June quarter, also believed that the RBNZ will be compelled to further tighten monetary policy in November.

Darren Gibbs, Westpac senior economist, said the central bank will likely put people on notice at next week’s review that the November rate rise is a live option.

HSBC recently joined the rate-hike camp, revising its earlier forecast due to Stats NZ estimating that the economy grew 0.9% in the June quarter. It now also predicts the OCR to climb 5.75% in November.

No, interest rates have peaked

BNZ has long been more vocal than most that a deeper economic downturn may be around the corner.

Stephen Toplis, BNZ research head, said the bank remained firm in its view that RBNZ will maintain the rates in October, and that its next move will be a cut.

“They would have to be sufficiently concerned about inflation they would contemplate raising interest rates several more times,” Toplis said.

Infometrics, too, believed the OCR had gone high enough.

But, like Toplis, Brad Olsen, Infometrics principal economist, was of the opinion that if RBNZ does raise rates, it won’t do that just once and could potentially hike to at least 6%.

Kiwibank’s take on the economic outlook does not seem that much different from that of BNZ.

The NZ-owned bank warned the brunt of the slowdown is yet to come and predicted monetary policy will have to be loosened before long.

Also in the camp is Moody’s Analytics, which said that although recent economic growth “may be a concern” to RBNZ, it expects the next OCR move to be a cut late next year.

Hedging their bets?

ASB’s forecast that the OCR has peaked at 5.5% remained unchanged, but the bank did not sound too confident about that, noting that financial markets have shifted towards fully pricing-in a further 25bp rate hike by February and that an additional hike was a “clear risk.”

Capital Economics struck a similar tone in its commentary.

Marcel Thieliant, Capital Economics Asia Pacific head, said the resilience of economic activity in New Zealand may encourage RBNZ to hike rates further this November, though it considers it more likely that the bank will instead settle for retaining interest rates “higher for even longer,” Stuff reported.

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