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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  • biscuit barrel

    Paul Henry could do his ‘9 in 10’ segment from the Reserve Bank briefing, its not like they wouldnt know the way there.

  • Time For Accountability

    I prefer to await the advance release from Media Works so I can speculate.
    Their recent release seemed to be straight out of the Sting. Robert Redford/Paul Newman.

  • Ross

    Overnight Index Swaps are pricing in a 21% chance of a cut at the next meeting.

  • cows4me

    What does mediaworks say, they must have the good oil.

  • Keanne Lawrence

    Obvious is not a term relevant to the RBNZ since they are not influenced by the Media party or some self claimed expert now hedging their bets.
    The OCR will remain the same at least to the end of this current quarter. However by the 4th quarter there might be increasing pressure for the rate to begin it’s inevitable rise.

  • Diehard

    We need another interest rate drop. Interest rates are too high compared to international rates which makes our dollar over valued. Exporters, especially Fonterra need a lower dollar.

    The Auckland property market will continue to rise regardless of interest rates which are already low, immigration is high and, supply of new property is low because of our incompetent council, and that doesn’t look like changing soon.