OCR tipped to rise next month after Reserve Bank calls early end to 'QE'
Wednesday, 14 July 2021
ANZ, ASB, BNZ and Westpac are all forecasting the Official Cash Rate will go up to 0.5 per cent next month, after the Reserve Bank called time on “quantitative easing”.
The Reserve Bank held the Official Cash Rate at 0.25 per cent when it released its monetary policy review on Wednesday.
But it reduced its monetary stimulus by announcing it would terminate its quantitative easing (QE) programme next week, almost a year earlier than originally expected.
The Reserve Bank has been using QE to depress medium and longer-term interest rates, which could now be expected to flex higher.
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ASB viewed the announcement as also meaning the chocks were off the OCR.
ANZ, ASB and BNZ all brought forward their forecast of an OCR hike from November to August.
ASB’s chief economist Nick Tuffey said the Reserve Bank had “clearly changed tack” and could raise the OCR at any future meeting.
“Essentially, every OCR decision from now on should be considered ‘live’,” he said.
ANZ said the fact the Reserve Bank had titled its release “Monetary Stimulus Reduced” was a big flashing sign that it considered the monetary policy cycle to have turned.
BNZ research head Stephen Toplis said it was to the Reserve Bank’s credit that it had “acknowledged the sheer pressure of the recent economic data and its inflationary risks”.
Westpac was the last of the big four banks to adjust its forecast on Wednesday evening.
The Reserve Bank said it would stop additional asset purchases under its Large Scale Asset Purchase programme by the end of next week.
That programme has seen it ‘print money’ to buy back $53.5b of central and local government bonds, but it had previously envisaged spending up to $100b on the programme by June next year.
The New Zealand dollar jumped more than half a US cent, breaking through US$0.70 within minutes of the announcement.
Explaining its decision, the Reserve Bank’s monetary policy committee said economic conditions since late last year had been “persistently stronger than anticipated” and the risk of deflation and high unemployment had receded.
“The committee agreed that a ‘least regrets’ policy now implied that the significant level of monetary support in place since mid-2020 could be reduced sooner, so as to minimise the risk of not meeting its mandate,” it said.
ASB did not wait for the outcome of the Reserve Bank’s monetary policy review on Wednesday afternoon before deciding to raise its fixed-term mortgage and term deposit rates.
ASB announced hours earlier that it was increasing the interest rate interest on its six-month fixed-term mortgages from 2.99 per cent to 3.29 per cent, and the rate on five-year mortgages from 3.69 per cent to 3.99 per cent.
The bank also announced interest on six-month term deposits would rise from 0.8 per cent to 1 per cent, with the rate on five-year term deposits rising from 1.75 per cent to 2 per cent.
Kiwibank also announced ahead of the Reserve Bank call that it was increasing its 200-day term deposit rate to 1.2 per cent from 0.8 per cent.
National Party shadow treasurer Andrew Bayly welcomed the Reserve Bank’s decision to ease back on monetary stimulus saying there was ”overwhelming evidence that the economy is heating up too much too quickly”.
While a low OCR and QE “might have been useful” when there was a lot of uncertainty about the economic impact of Covid, they had helped fuel rising house prices and consumer inflation, he said.