ANZ now expects three official cash rate (OCR) increases this year — in July, September and October. However, it has revised down its peak forecast, saying the rate is expected to lift to 3% from the current 2.25%, rather than the 3.5% previously anticipated.
ANZ chief economist Sharon Zollner pointed to the latest update from the Reserve Bank (RBNZ) as a clear signal that rate hikes are on the table if key conditions are not met, stressing a more assertive stance on inflation.
“I think that was fair to interpret that as deliberate, and certainly the media appearances and the press conference gave the impression of more focus on inflation than on near-term growth,’ she said.
“Or at least taking the longer-term view on growth, that a little bit of short-term pain might be worth it for a long-term gain, that kind of argument.”
“We don’t have a strong view on July versus September. But we do have a pretty strong view that hikes will come before our previous call of December.”
Zollner said the OCR may not need to rise as high as the earlier forecast, noting the strain further increases could place on an already fragile economy.
“Even though the OCR will still be low, in inverted commas, we think [increases] could be pretty powerful because confidence is weak and this is a negative income shock.
“You’re kicking the economy when it’s down, essentially. That’s why, in exchange for earlier hikes, we now see the OCR stopping earlier.”
She added that homeowners should be bracing for higher borrowing costs, with home loan rates likely to rise. Wholesale rates have already been climbing over the past week, driven by developments tied to the Middle East conflict.
“Now even the few boats that were getting through the Strait are going to struggle to do so … if things continue to move in that direction, then we could see some more upward pressure on mortgage rates potentially.”
ANZ cautioned that it is far from certain that raising the OCR will ultimately prove to be the right call, particularly given the broader economic pressures already in play.
The impact on demand from this drop in national income shouldn’t be overlooked, just as the tightening in financial conditions we’re already seeing shouldn’t be ignored.
Even so, the RBNZ committee is likely wary of repeating what happened during the Covid period, when policy stayed too loose for too long.
“A July kick-off for hikes is not a high-conviction view; it is just what we currently see as the single likeliest timing as we stare into the murk. Take everyone’s forecast with a generous pinch of salt – including both ours and the Reserve Bank’s.”
“That’s just the world we find ourselves in.”