"The economy is not rolling over," the bank's economists say
New Zealand’s largest bank has made big changes to its interest rate outlook, forecasting even more aggressive OCR hikes to a peak of 4.75% to cool an economy that refuses to “roll over.”
ANZ forecasted three more increases of 25 basis points at the February, April, and May monetary reviews, following a higher-than-expected GDP growth of 1.7% in the June quarter. The OCR currently sits at 3%.
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In a commentary, ANZ economists said, “the economy is not rolling over, with the tight labour market and strong wage growth partially offsetting the impact of higher interest rates,” NZ Herald reported.
The low New Zealand dollar, currently about US60c, was making a meaningful offset to current monetary conditions, ANZ said, but denied that it was bullish on the growth outlook.
“The Reserve Bank needs to see slower growth, and it'll get it,” the ANZ economists said. “But we think it'll take a higher OCR to do the job. Risks are firmly tilted towards inflation and inflation expectations not falling as far nor as fast as is required to get real interest rates to a sustainably contractionary level, meaning more work for the OCR to do.”
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ANZ's economists said the big change to their forecast was at the risk of a "flip-flop.”
“So be it; it's what's needed to balance the risks around our central view,” they said.
Last week, ASB predicted a further 25bp hike in early 2023 on top of the 100bps of hikes by the end of this year, taking the OCR to 4.25%.
The Reserve Bank forecasted in August that the rate will peak at 4.1% by June next year, NZ Herald reported.