OCR drop? After last time, nobody wants to take a position

It is looking a little less likely that the Reserve Bank (RBNZ) will cut interest rates next week, following the release of the latest consumer price numbers.

The Consumer Price Index (CPI) rose just 0.2 percent in the first three months of the year. That is what the RBNZ expected, but was slightly higher than the markets were predicting.

The weaker global oil prices played a part. Airfares fell 12 percent and petrol prices slipped by 7.5 percent in the March quarter.

But tobacco and cigarette prices increased 9.4 percent, thanks to 10 percent rise in excise duty.

Fruit prices rose by 8.2 percent. However that was only a 1.6 percent increase if you allow for seasonal factors.

The end result was a lift in the CPI of 0.2 percent.

The RBNZ aims to keep annual inflation at between one and three percent. Ideally they would like it to be around two percent.

But inflation has been running well below one percent.

So the Reserve Bank has indicated it expects it will cut the Official Cash Rate at least once more this year from the current level of 2.25 percent.

If you don’t smoke, don’t drink, and you have a non-investment related income, these are good times.   If you’re paying off a mortgage on property that’s not leveraged to the hilt, you can accelerate your payments and save lots of money.

Economists at Infometrics say that prior to the CPI figures coming out the markets were pricing in a 60 percent chance of a rate cut. It says the market probability has now fallen to around 50 percent.

They make the point that many of the biggest movements in prices were “either seasonal changes or factors outside the Reserve Bank’s control”. A good example is the increase in the tobacco excise tax.

Infometrics thinks the RBNZ might want to collect more labour market and dairy price data before making another cut to the OCR.

Some economists say the odds of a rate cut next week are even lower, at around 30 percent.

So the markets are 50/50 on the OCR staying the same.

Last time almost everyone was convinced there would be no drop.

They are clearly hedging their bets as they can no longer rely on the Reserve Bank doing the obvious.


– Tony Field, Newshub


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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

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