OCR on hold at 1.75% and may fall in the next meeting

The Official Cash Rate (OCR) remains at 1.75 percent. Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR will be down. This follows on from last week’s article where the Fed (USA’s Federal Reserve) announced it will keep rates the same and no more hikes in 2019. 

Right now, the Reserve Bank has 2 factors to consider. On the one hand, there’s inflation to think about (rising costs of groceries, petrol, insurance, practically everything). The Reserve Bank has a mandate to keep annual inflation between 1 per cent and 3 per cent with a focus on the 2 per cent mid-point.

On the other hand, there’s a slowing economy coupled with many households having a lot of debt. Rising interest rates will hurt those with debt, but not increasing interest rates will just add to inflation.

At the moment, it seems the governor is emphasising the economy and less worried about inflation in making his OCR decisions. Adrian Orr, on behalf of the Reserve Bank of New Zealand believes that ongoing low interest rates, and increased government spending and investment, will help support economic growth over 2019. Let’s hope he is right.

 

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