OCR tipped for record rise, recession still possible - economist

November 23, 2022
New Zealand currency (file image).

The Official Cash Rate (OCR) will likely rise by 75 basis points today, one expert says. It would be the biggest increase since the OCR was introduced in 1999 - and there is still a real chance New Zealand could fall into a recession.


For each of the past five increases, the Reserve Bank (RBNZ) has hiked the OCR by 50 basis points.

ANZ chief economist Sharon Zollner told Breakfast this morning that "most domestic forecasters" predict a 75 basis point rise today, taking the OCR to 4.25%: "So that's quite remarkable after a whole year of hiking, that we're picking them to accelerate again."

A 75 basis point rise would be the single largest hike in the OCR's 23-year history as a monetary policy tool.

And Zollner said it's a factor in today's decision that the RBNZ won't meet again until February.

"Seen in that light, it's not really such an acceleration, but of course, it feels like one," she explained.

Impact on mortgage rates

Zollner said floating mortgage rates tend to move "one for one" with the OCR, while fixed mortgage rates are "a bit more unknown" and could even drop as a result of today's announcement, depending on what the RBNZ signals about future intentions.

"But it's certainly clear that interest rates are much, much higher than they were a year ago or eighteen months ago.

"And that hasn't been entirely expected by everyone so, it is a bit of a shock and as we've heard, people are struggling with the cost of living so it's a bit counter-intuitive to pile another greater cost of living on to people," she said.

"But the fact is, the only way to get on top of inflation is to actually cool spending down."

Recession still possible

Zollner said inflation - currently at 7.2% - has been "stuck".

"Our forecast is it's going to drop away quite quickly, but we had some really quite strong rent and food price inflation in October that just underlined the risk that it's actually not a given that it's even going to fall in the next quarter."

Asked if a recession was still possible, Zollner said: "Yes, absolutely.

"In our forecasts we skate on the edge of it, the Reserve Bank is basically having to drive looking in the rear vision mirror because inflation and wage growth is the absolute last thing to respond to what they do.

"So there is a risk that they could oversteer it, it's also possible that nothing but a recession will actually get on top of inflation at these levels, we don't know that a soft landing would actually do it. There's a lot of uncertainty."

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