Fiscal stimulus would be "smaller than previously expected"
New Zealand has started recovering from the impacts of the COVID-19 lockdown. However, the future of the economy is still uncertain, and Westpac economists predict that the Reserve Bank of New Zealand (RBNZ) might still be forced to slash the official cash rate (OCR) in April 2021.
“Low inflation is likely to remain a feature in the years to come, and monetary easing will need to continue beyond the guidance that the Reserve Bank has given to date,” the Westpac economists said, as reported by Good Returns.
The economists claimed that fiscal stimulus would be “smaller than previously expected” as the country continues to recover from the pandemic – resulting in negative OCR forecasts for the coming year.
“Less borrowing by the government will mean less scope to ease monetary policy through bond purchases. Both make it more likely that by next year the RBNZ will have to resort to other tools, such as a negative OCR,” they said.
Read more: Experts expect negative OCR within the next 12 months
Other economists and experts seem to have similar forecasts, with last month's Finder RBNZ Official Cash Rate Survey showing that 31% of the respondents predict a negative OCR within the next few months. Meanwhile, 12% predicted a negative OCR in September.
Alfred Guender, an associate professor at the University of Canterbury, commented that the road ahead remains uncertain.
“The RBNZ has done all it can for the time being. There is enough liquidity in the financial sector, and both short-term, as well as long-term interest rates, are at record lows,” he said.
“The stage is set for a recovery. Where we go from here depends on private-sector decisions, fiscal spending, and, importantly, on what happens to the world economy.”
