ANZ lifts OCR forecast to 3% by April next year while still hedging its bets

Wednesday, 19 January 2022

ANZ says uncertainty about the current outlook is currently “extreme”.

ANZ has raised its forecast for the official cash rate, tipping it will reach 3 per cent by April next year because of tightness in the labour market.

But the country’s biggest bank hedged its bets by also saying there was a “decent risk” that the hiking cycle would be derailed before the OCR rose above 2 per cent.

ANZ said it expected December-quarter inflation and unemployment figures due to be released by Stats NZ over the next two weeks would surprise the Reserve Bank, prompting it to raise the OCR further than it had signalled, in a series of 25 basis point increases.

“Importantly, our updated view is not based on a belief that growth will be going gangbusters,” ANZ chief economist Sharon Zollner said.

What does the official cash rate mean?

* 10% house price drop, weaker spending will see OCR cuts in 2023, forecaster tips

* Fears of interest rate hikes trigger homeowners to lock in longer-term rates

“The housing market appears to be coming to a very sudden stop; households are facing significant cost-of-living stresses and have subdued confidence; a shortage of workers and materials is hampering production; and Omicron is knocking on our door.”

But Zollner said the reality of “a prolonged negative supply side shock” was that even modest growth could stretch resources and cause inflation.

“The trade-offs are unpleasant and there’s no way around that.”

Zollner described uncertainty about the economic outlook as “currently extreme” in a research note, warning that no forecast should be taken as gospel.

But if market confidence in the ability of central banks to rein back inflation fell, Covid-related supply-side disruptions worsened in China, or climate change policies “kick in meaningfully”, inflation could prove even harder to control, she said.

”For the past 20 years, investors and other risk-takers have gotten used to thinking of central banks as their friends who have their back; that weak growth or wobbly markets mean lower interest rates,” she said.

“This time, it’s highly conditional love. It’s all about inflation now.”