HomeContributorsFundamental AnalysisRBNZ to Hold Fire, in Light of New Covid Case

RBNZ to Hold Fire, in Light of New Covid Case

We now expect the RBNZ to leave the OCR on hold tomorrow, to await developments in the new Covid-19 community case.

Change of forecast: No RBNZ rate hike tomorrow

We now expect the Reserve Bank to leave the OCR on hold at tomorrow’s Monetary Policy Statement. Regardless of the economic case for higher interest rates, there is nothing to be gained from pushing the OCR higher now, rather than waiting for more clarity on the Covid situation.

Earlier today a case of Covid-19 in the community was announced. A link to the border has not yet been established.

In response, the Government has announced that New Zealand will move to Level 4 (the strictest Covid alert level) from midnight tonight. This will initially be for seven days in the Auckland and Coromandel regions, and three days in the rest of the country.

The key here is that the Government cannot be confident about the scope of the problem. Further testing and tracing will be needed in the coming days to establish this.

Experience shows that economic activity tends to bounce back readily once Covid restrictions are lifted. And when that happens, the RBNZ will be left facing many of the same issues as before: an economy that is running up against cost pressures and capacity constraints, with risks that inflation could become more persistent. Ultimately we expect OCR hikes will still be needed, but we will review the likely timing of this as we get more clarity.

Westpac Banking Corporation
Westpac Banking Corporationhttps://www.westpac.com.au/
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

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