The booking bank softens the possibility of OCR cutting



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As expected, the Reserve Bank has left a 1.75 percent official interest rate (OCR), but has softened its view that the next move is a cut.

OCR has been at a record low of 1.75% for two years.

Bank Governor Adrian Orr has said earlier that all OCR changes could "rise or fall," but yesterday in the monetary policy statement it was said that the interest rate would remain "at an expansive level".

"We keep OCR at an expanding level to sustain long-term employment and maintain low and stable inflation," he said.

He reiterated that OCR would remain at this level by next year and by 2020.

Westpac Chief Economist Dominick Stephens said Orr had used a decisive sentence – that the next move could be "up or down" – was now removed.

"This means that Reserve Bank has turned away from the possibility of reducing the OCR," he said in a statement.

"However, they have not moved closer to hiking," he said.

The numerical OCR forecast was identical to the August forecast and the implicit OCR rise from mid-2020, Stephens said.

Nose stated that both economic growth and inflation projections are positive and negative.

"As always, the timing and direction of any future OCR will remain dependent on data," he said.

Growth in gross domestic product accelerated in June, partly due to temporary factors, and according to business surveys, growth will continue to be "soft in the near future," he said.

"However, the central consumer price inflation remains below the 2% point, which requires constant monetary policy," Orr said.

ASB Chief Economist Nick Tuffley said the Reserve Bank was concerned about the negative risks of poor business confidence.

However, the bank was cautious that inflationary pressures may prove to be stronger than anticipated, especially if companies move to higher costs than expected.

He predicted that OCR would remain on hold before the first half of 2020.

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