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RBNZ Survey: Experts Predict OCR To Cut In 2020, Despite '12-month Hold'

Despite the Reserve Bank of New Zealand (RBNZ) pledging to keep the official cash rate (OCR) at 0.25% for the next 12 months, experts say a cut could be on the cards as early as next week.

In the latest Finder RBNZ Official Cash Rate Survey, 11 experts and economists weighed in on future OCR moves and economic indicators, including property and tourism.

When asked about the next OCR move, the majority of experts (45%, 5/11) predicted a further cut in 2020, with 15% (2/11) forecasting an OCR easing this Wednesday (13 May 2020).

According to Dr Oliver Hartwich from NZ Initiative, “a rate cut should be expected given New Zealand’s rapidly deteriorating economic circumstances.”

Brad Olsen from Infometrics said that emerging pandemic developments mean the Reserve Bank may reverse its decision to hold the cash rate for an extended period.

“With economic conditions now far worse, we see there to be scope for a further [OCR] reduction in early Q3 [2020], as the wage subsidy runs out and businesses see increased costs and survival pressures,” he said.

Property values expected to plummet

Despite the Reserve Bank confirming its decision to axe loan-to-value (LVR) restrictions for the next 12 months, the majority of experts (55%, 6/11) think now is not a good time to purchase property.

Experts predict prices to drop by as much as 8% in Auckland as a result of the pandemic. This would see the median property price fall by almost $76,000, from $950,000 to $874,000.

Auckland was followed by Christchurch, where prices are predicted to fall by 7%. This would lower the median property price from $500,000 to $465,000.

The experts also forecast price dips in Dunedin (-6%) and Wellington (-6%).

Kevin McHugh, Finder’s publisher in New Zealand, says that job security remains key for first home buyers eager to pounce while prices are down.

“First home buyers with a secure job are being presented with a unique opportunity to enter the market sooner than expected,” he said. “But the combination of a looming recession, job cuts and no vaccine as of yet means it’s shaky territory on the employment front.”

Borders expected to remain closed

All the experts who weighed in on when the borders would reopen (100%, 8/8) think New Zealand’s borders will remain shut until 2021, with more than a third of that group (38%, 3/8) forecasting a reopening as late as 2022.

This comes amid talks of a trans-Tasman “travel bubble” between Australia and New Zealand, which would see quarantine-free travel between the two countries.

This would kickstart much needed economic recovery, with New Zealand reporting a $13 billion hit to GDP after just three months of travel restrictions.

Here’s what our experts had to say:

Robin Clements, UBS: On hold at 0.25% until the end of our forecast horizon i.e. end-2021.

Alfred Guender, University of Canterbury: There is too much uncertainty about the depth of the oncoming recession. Other central banks, notably the Fed and the ECB, have left their main policy instrument unchanged for the same reason.

Bindi Norwell, REINZ: The government and banking system understand the vulnerability of the housing market at present. Immediate policy support is already underway and an OCR decrease will add to that. Recovery is not expected until around mid-2021.

Dr Oliver Hartwich, NZ Initiative: A decrease in the OCR is widely expected. It would also be consistent with the RBNZ's quantitative easing programme. And, of course, it is also warranted given our rapidly deteriorating economic circumstances.

Brad Olsen, Infometrics: Although the Reserve Bank made it clear when it cut the OCR to 0.25% that it would "keep the OCR at this level [0.25%] for at least 12 months", we signalled at the time that we thought that emerging pandemic developments may well force the Bank to cut again.

Debbie Roberts, Property Apprentice: I think that the RBNZ will see how NZ progresses through the different Alert Levels before they make a change to the cash rate. As we have no idea how quickly we'll move to Level 2, or if we'll need to revert back to Level 4, it is basically anyone's guess.

Ashley Church, The RBNZ will want to review the shape of the economy post the lockdown before making any changes to the OCR.

Kelvin Davidson, CoreLogic: I think the question has probably moved on from what they'll do with the OCR. It looks to me to be on hold for a long period of time. Now the focus is more around QE, other monetary policy options etc.

Donal Curtin, Economics New Zealand Ltd: The need for exceptionally supportive monetary policy should (hopefully!) be past.

Michael Reddell, Croaking Cassandra: Macro conditions call for a much lower OCR. The MPC has pledged not to cut the OCR further. It is likely to change its mind, but is unlikely to do what is really needed and take the OCR into deeply negative territory.

Other participants: Christina Leung, NZIER

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