RBNZ View: FXWW

From the FXWW Chatroom – ASB now expect the “OCR will not rise until 2021, and it will only take 50 basis points of OCR increases (on top of cost of capital funding cost increases) to return borrowing rates to ‘neutral’. Interest rates are currently very low and stimulating the economy. The RBNZ will continue to want to reduce this stimulus over time as economic spare capacity reduces and inflation pressures lift back to the inflation target mid-point. Our new OCR view does not take account of other potential impacts, such as possible changes in bank lending appetites. And more broadly, the risks are skewed to the OCR not needing to increase much, if at all. But for most readers talking about the downside risks to the OCR can be misleading, as we continue to expect that retail interest rates and borrowing costs for NZ households and businesses will increase over 2021 and 2022. We believe the RBNZ’s initial analysis of its proposed capital requirements may be underestimating the potential economic impact from these changes, and so we expect to see little mention of their potential monetary policy impact the February MPS. We will be releasing a note on the RBNZ’s proposed capital changes shortly.”

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