First-home buyers

PHOTO: First Home Buyers

Economists and other experts expect the Reserve Bank of New Zealand (RBNZ) to increase the official cash rate (OCR) next week. However, ASB economists have called on the central bank to take a more “aggressive approach.”

Like other experts, ASB economists expect OCR hikes at the next three RBNZ meetings, with the OCR tipped to reach its pre-pandemic level by the end of 2021.

However, in the latest ASB Economic Weekly report, ASB economists urge the central bank to consider the advantages and disadvantages of starting with a 50bps increase.

“Last week, we changed our call to expect 25bps rate hikes at each of the next three available RBNZ meetings, which would get the OCR back to its pre-pandemic level by year-end. As Lisa Carrington has shown the world, a fast start can pay dividends.  And so it would also be worth the RBNZ considering the pros and cons of starting with a 50bps lift,” said ASB senior economist Mike Jones.

“The traditional argument against is that a double-up can spook markets and cause volatility. But markets are already pricing a 12% chance of a 50bps raise, and we doubt a 50bps lift would surprise the economic consensus.”

ASB economists noted the possible impacts of the COVID-19 Delta variant. However, they stated that the “clear and present danger” is that the country’s economy continues to overheat, allowing inflation to “get away.”