Bank says RBNZ will be “uncomfortable” keeping current emergency settings
ASB has shifted its OCR view, and is now forecasting the first OCR increase to take place in November 2021, as opposed to its previous prediction of May 2022.
Chief economist Nick Tuffley said that with higher inflation expectations, the Reserve Bank of New Zealand is “likely to become increasingly uncomfortable leaving the OCR at emergency settings.” He noted that labour demands have been incredibly high, and with businesses facing increasing cost pressures, inflation indicators have “surged.”
“We’ve been of the view that inflation pressures are starting to pick up for some time, and that labour shortages are going to be lifting inflation through higher wage costs,” Tuffley said.
Read more: ANZ economists release update on OCR forecast
“That’s been a theme for some time, and we’ve been bringing our rate hike view steadily forward over the recent months.”
“The Quarterly Survey has really qualitatively shown the way in which businesses are facing those cost pressures and labour shortages, and it’s also pointing to them working very hard to recover those costs by putting their prices up,” he explained.
“So it’s really highlighted that inflation pressures are lifting very sharply over a short space of time.”
Tuffley said that when it comes to interest rates, we are likely looking at the end of a sustained period of cheap borrowing. He said that rates are likely to start lifting sooner rather than later, as pandemic-level rates have always been viewed as “unsustainable.”
“We are increasingly seeing that wholesale interest rates are starting to trend up,” Tuffley said.
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“At some stage, we are likely to see the impact flow through to bank funding costs. The key message for borrowers is that the period of extremely low interest rates is likely to come to an end fairly soon, and where interest rates have been sitting over the pandemic has always been unsustainable over the longer term.”
“It’s just been a matter of how quickly things return to some version of normal,” he added.
“Given that the economic recovery has actually been going quite strongly and businesses are now just scrambling to find people and facing a lot of cost pressures, the signals are that we’re going to see rates go up quite soon.”
