Westpac Institutional Bank Team
Westpac Institutional Bank
In this week’s report we set out our reasoning for a downgrade to our OCR forecast. We now expect that the OCR will remain on hold until late-2016, and that the subsequent hiking cycle will result in the OCR peaking at a mere 4%. However, we also argue against the notion that the Reserve Bank will reduce the OCR this year.
Low for longer...
As discussed in our latest Market Outlook report, the global economy remains sluggish and global inflation is virtually non-existent. Consequently, more than 20 central banks have eased monetary policy recently. These conditions look set to persist for a while yet. For New Zealand, this is going to mean limited imported inflation and sustained upward pressure on the exchange rate vis-à-vis the Australian dollar, the euro, and the yen.
What’s more, global oil prices have remained low. And after carefully considering the likely state of supply and demand in the market, we have adopted a forecast of only gradually rising oil prices over the coming two years.
All of this is going to provide a brake on inflation in New Zealand for some time. We expect that inflation will remain below the RBNZ’s target band through 2015, and below the 2% target mid-point until mid-2017. This will result in a full five years of sub-2% inflation.
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