Economists are predicting the OCR will be held steady tomorrow – despite the ongoing conflict in the Middle East and the impact it is having on the domestic economy.
Since the war began at the end of February, petrol prices have soared, and the global economic outlook has worsened.
Infometrics chief executive Brad Olsen told Breakfast today the Reserve Bank would likely hold the rate at its current 2.25%, and avoid a “knee jerk” reaction to what remains an uncertain situation.
“For the Reserve Bank, they don’t want to be sort of switching track from one to another every time there is some new news. They’re wanting to effectively look through that short-term instability, in case things change, in case you do see the Strait of Hormuz open.”
Olsen said the Reserve Bank is also clear when they’re looking at inflation, “what they are worried about is if there was persistence”.
“That’s where things went wrong a couple of years back. We had so much economic activity in the system that every business was trying to increase their prices.
“This time around, the economy is a lot weaker, businesses might try but for the moment the Reserve Bank will be hoping with fewer sales about that businesses across the country just simply won’t be able to increase prices to the same degree, and so hopefully core inflation will be restrained.”
Similarly, ASB senior economist Mark Smith said in a report published last week the Reserve Bank “seem in little hurry to move the OCR and are content to look through the short-term inflation impacts of the Iran shock”.
For the medium-term, Smith said a 0.25% OCR hike in December was expected, and 0.75% of OCR hikes from early 2027 have been pencilled in – with risks of “more pronounced” hikes if New Zealand’s inflation outlook trends higher.
Westpac’s report also expected the OCR to be held tomorrow, and referenced Reserve Bank Governor Anna Breman’s speech on the economy on March 24.
“Breman indicated that rate hikes will only be brought forward should there be an accumulation of evidence suggesting that the oil shock is generating second-round pressures on wages and prices, leading to higher inflation over the medium term.
“Those secondround effects – which are more likely to occur if the conflict is prolonged – are unlikely to be evident for some time.”
The Reserve Bank will review the OCR for the second time this year tomorrow at 2pm. Tune into 1News.co.nz for the news as it comes in and the reactions that follow.
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