A timely intervention

Since Graham Wheeler came to the helm, the Reserve Bank seems to have been operating a “no surprises” policy for OCR decisions. Last week was no exception. A 25 basis point hike at the July OCR Review was well-telegraphed and duly delivered, despite the recent run of weak data. This takes the OCR to 3.5%.

The accompanying press release was bang in line with our expectations. The RBNZ announced that, having hiked the OCR by one percentage point, it is now time for a pause:

“Encouragingly, the economy appears to be adjusting to the monetary policy tightening that has taken place since the start of the year. It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level.”

The first part of that statement is as good as a promise that the OCR will not rise at the September Monetary Policy Statement. But the second part was a reminder that the RBNZ still intends to hike the OCR over the coming years. Indeed, the description of the long-run OCR outlook was similar to previous releases:

“The speed and extent to which the OCR will need to rise will depend on the assessment of the impact of the tightening in monetary policy to date, and the implications of future economic and financial data for inflationary pressures.”

We have not changed our OCR forecast. We expect the current pause phase will last until January 2015. At that point, we expect the RBNZ will kick off another slug of three consecutive OCR hikes. And we anticipate a peak OCR of 5.25%.

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