OCR likely to remain at 1.5% in August rate review

OCR is likely to remain at 1.5% in August rate review despite the Federal Reserve (US) cutting their official rate by 0.25% to 2%-2.25%.

Below is the chart showing the Fed Rate since 2008.

Compare this to NZ’s OCR historical trend:

We can see the OCR trend tracks the Fed Rate closely between 2008 and 2014 (the dramatic rate cut to historical lows at that time) and then a period of stability (with no change in rates). After 2014, the OCR diverged from the Fed Rate. The OCR was increased (in hindsight prematurely) because it was followed by steady decreases and is currently at 1.5% (the lowest it has been since the inception of the OCR as the primary monetary policy tool). On the other hand,  the Fed rate remained at the 0.25% benchmark until the end of 2015 and has been on a consistent rise until July 2019 when it was lowered to 2% to 2.25%. From 2008 to 2014, NZ’s OCR was higher than the US Fed Rate but this trend has since reversed with the US Fed Rate being higher than the OCR.

Currently, the US Fed rate is in the 2% – 2.25% range so there is still plenty of room for the Federal Reserve. NZ and also Australia on the other hand have historical low OCRs and do not have much room to navigate. Similarly, there is no strong argument for decreasing the OCR (after considering the employment, inflation and GDP data).

Based on this analysis, it is unlikely the OCR will be decreased in the August meeting but may be at a later date.

back to home (Property Guide 360 .co.nz)