ASB's economists do not expect any further Official Cash Rate (OCR) rises from the Reserve Bank "for the foreseeable future."
In an Economic Update newsletter, ASB chief economist Nick Tuffley said; "We now expect the RBNZ to keep the OCR on hold for the foreseeable future."
ASB's economists were previously forecasting two OCR increases with the first in December this year and the second in March 2016.
However the bank does also sound a note of caution, saying the skew of risks was still towards a higher rather than lower OCR.
"To cut to the chase, we no longer expect the OCR to increase in the foreseeable future and see a growing risk the RBNZ moves to a more neutral bias at the January OCR review," Tuffley said.
"Headline inflation is going to remain very subdued over 2015 courtesy of the plunge in oil prices and a backdrop of mild inflation.
"Given how long inflation has already remained low, we expect the RBNZ will be increasingly wary about putting up the OCR until reported inflation demonstrates some distance from the 1% floor of the inflation target.
"By the time that happens, we expect key leading indicators of capacity pressures will be giving the RBNZ signals that future inflation will be contained.
"But we see risks to this view as skewed to a higher OCR.
"For one, the economy could grow more strongly this year than our already robust forecast.
"A more immediate threat is the recent rebound in the Auckland property market, though any sustained pick-up seems more likely to become a financial stability issue."
Meanwhile, following yesterday's news that the Consumer Price Index fell 0.2% in the December quarter from the September quarter, and inflation in the year to December was just 0.8%, Westpac chief economist Dominick Stephens says the benign inflation outlook has scotched any idea of the RBNZ hiking the OCR in the near term.
"We now expect no OCR hike until June 2016 by which time we expect inflation to have risen back above 2%. We are now forecasting a peak OCR of just 4.5%," says Stephens.
The Reserve Bank's next OCR review is next Thursday, January 29.
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5 Comments
Looking back at comments since Wheeler first started increasing rates , and I always knew that inflation was being used by RBNZ as a bogeyman.
And I mean a BOGEYMAN per the definition in Wikipedia , the RBNZ was trying to frighten us to stop spending on credit and overheating the economy , ostensibly with the threat of inflation.
What we could all see was fact that prices were falling .
When bank economists say 'hikes' - the reality has been 'flat' for the last 6 years.
So now when they say 'Flat', we can probably assume 'Cuts'.
Most astute observers of household spending, small businesses, non-corporate farms, regional economies, global trends, have seen chronic demand deficiency syndrome CDDS building for some years since 2008.
The future problem may be that cuts will have minimal impact on CDDS - it may already be too late.
Absolutely.
Has Wheeler the guts to reduce the OCR by a market chilling 0.5%?
Enough to frighten the horses is needed. The problem is not the rate but the differential against competing central banks. The others have not held back and even the US and UK are just threatening to raise rather than doing anything.
As far as the Auckland housing is concerned, Wheeler has a few countering tools in the kit which he threatens to use and doing zilch.
"We now expect no OCR hike until June 2016 by which time we expect inflation to have risen back above 2%. We are now forecasting a peak OCR of just 4.5%," says Stephens.
He forgot to say: And by June 2017, we expect Westpac to have made a decision on moving its 1, 2 and 4 year fixed borrowing rates, so they are in line with the other banks.
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