Lockdown douses chances of OCR hike

Whereas a day ago, a hike was expected by all major analysts, some have now shifted to an on-hold decision.

Reserve Bank will deliver its monetary policy statement at 2pm.

Westpac head of NZ strategy Imre Speizer says yesterday’s sudden Covid-related lockdown has changed sentiment.

Westpac’s economists argue that regardless of the economic case for higher interest rates, there is nothing to be gained from pushing the OCR higher now, rather than waiting for more clarity on the Covid situation, says Speizer.

Market pricing for today has fallen from a 100% chance of a hike (as at yesterday morning) to 60% currently. “We struggle to construct a plausible RBNZ scenario which would cause no market reaction.

“Thus, on this occasion, we present only two scenarios. “A 25bp hike would indicate the hawkish resolve of the RBNZ, and cause swap rates and the NZD to rise. An on-hold decision would elicit the opposite reaction to the above, but the declines would be limited by an expectation that tightening has merely been delayed.”