RBNZ Survey: 3 In 4 Experts Predict The OCR Will Rise To 4.25% In November

News highlights:

 58% expect the cash rate to peak between 5 to 5.25% early next year

 The majority say inflation will only reach the RBNZ’s target range of 1-3% in Sept 2023 or later

 All economists predict another increase to the OCR in November 

21 November 2022, New Zealand – Persistently high inflation could see back-to-back increases to the cash rate, according to a new Finder poll. 

In this month’s Finder RBNZ Official Cash Rate Survey, 12 experts and economists weighed in on future official cash rate (OCR) moves and other issues relating to the state of New Zealand’s economy.

While all panellists (100%, 12/12) are confident the OCR will rise yet again on Wednesday, the majority (75%, 9/12) are expecting a 75 basis point hike for the first time in 2022 – bringing the OCR to 4.25% in October. 

Over half of experts (58%, 7/12) expect the cash rate to peak between 5 and 5.25% between February and May 2023.

Three-quarters of the panel (75%, 9/12) forecast another cash rate increase in February.

Angus Kidman, Finder’s editor-at-large in New Zealand, said Kiwi homeowners were staring down the barrel of a sixth consecutive cash rate hike this year.

“This is the first time the majority of our panellists have predicted an increase of 75 basis points to the OCR in the 3 years we’ve been running our survey. 

“This will pile on the pressure for many homeowners who are already doing it tough.”

Michael Gordon from Westpac said another rate rise was imminent. 

"The Reserve Bank needs to reinforce its determination to bring inflation under control," Gordon said.

1 in 6 BNPL users can’t manage their finances without it

The cost of living for the average Kiwi household increased by 7.7% in the September 2022 quarter.

However the panellists who weighed in* were evenly split (50%, 4/8) on whether they expect more households to rely on credit cards and BNPL this Christmas compared to last year.

A Finder nationally representative survey of 1,486 respondents found one-third of Kiwis (33%) have used BNPL at least once within the past 12 months.

Of those, one in six (16%) say they can’t afford to live without it.

The research found nearly two-thirds of gen Z (62%) have used BNPL within the past 12 months, compared to 50% of millennials, 31% of gen X and 9% of baby boomers.

Kidman said accumulating debt – whether through BNPL, credit cards or other loans – can happen slowly at first, but can rapidly accelerate.

“Christmas is a notoriously expensive time of year, and soaring inflation and higher mortgage repayments will make it even worse.

“Falling back on buy now, pay later services to pay for stuff you can’t afford seems like a quick fix, but it's a slippery slope.

“Festive fun isn't worth financial strain in 2023,” Kidman said.

Alfred Guender from the University Of Canterbury said greater reliance on credit is a distinct possibility. 

“Most people are hopefully wise enough to realise that servicing credit card debt is very expensive. Increased use of BNPL cannot be ruled out as new regulations governing their use will not be introduced until next year," Guender said.

Housing affordability tipped to ease

In the year to September 2022, 22,697 stand-alone houses were approved for construction (down 11% from 2021). 

In contrast, 20,779 townhouses, flats, and units were approved for construction (up 37% from 2021).

A number of panellists noted this would likely make housing more affordable, and therefore push home prices down.

Jarrod Kerr from Kiwibank said there had been a strong lift in residential construction. 

“The housing market is in desperate need of healthy and affordable homes. There is a lot more work that needs to be done to better balance the housing market," Kerr said. 

Donal Curtin from Economics New Zealand commented, "One element in house prices soaring to grotesque levels has been restricted supply, so a pickup in construction is very welcome.”

Furthermore, RBNZ data shows the value of new home loans in September 2022 decreased 30% from September 2021.

Alfred Guender from the University Of Canterbury said he expected this trend to continue. 

“The correction of overinflated house prices is overdue and should continue its downward trend in the major urban areas."

Inflation to persist through 2023

The majority of panellists (89%, 8/9) believe inflation will persist through 2023 and only reach the RBNZ’s target range of 1-3% by the end of September 2023 or later.

In line with this forecast, over half of experts (55%, 6/11) forecast that inflation will only drop to between 6 and 6.6% by the end of 2022.

Finder's Economic Sentiment Tracker gauges experts' confidence in 5 key indicators: housing affordability, employment, wage growth, cost of living and household debt over the next 6 months.

Positivity towards all indicators – bar housing affordability – rose in November. 

Positivity towards wage growth has jumped from 75% in October to 80% in November, after plummeting to 0% in July.

*Experts are not required to answer every question in the survey

Here’s what our experts had to say:

Mark Holmes, University of Waikato (Increase): "There are still signs of a tight labour market, and insufficient indication that inflation and inflation expectations are heading back to the Reserve Bank target. We are looking at a 50-75 basis point increase in the OCR for November followed by a smaller increase in February."

Alfred Guender, University Of Canterbury (Increase): "RBNZ is expected to continue its tightening cycle in view of the still relatively high rate of inflation in New Zealand. It is very unlikely that RBNZ will deviate from the path of higher short-term interest rates blazed by the Federal Reserve and the European Central Bank."

Jarrod Kerr, Kiwibank (Increase): "Inflation and expectations of inflation have increased. The RBNZ still has some work to do to ensure price stability over the medium term."

Saten Kumar, Auckland University of Technology (Increase): "Inflation is still way beyond the desired levels, and it is pragmatic for the central bank to raise the official cash rate."

Michael Gordon, Westpac (Increase): "The Reserve Bank needs to reinforce its determination to bring inflation under control."

Brad Olsen, Infometrics (Increase): "What choice do they have? Inflation is persistent, pervasive, and problematic, with the intensity of recent inflation data combining with rapid wage growth, a lack of pricing discipline, and unanchored inflation expectations. The Reserve Bank can't back down now, and needs to not only go big but also reinforce its commitment to further action until they see a shift in inflationary fundamentals. Such bold action risks, and perhaps ensures, a hard landing. But with no real economic and inflation reaction yet to higher interest rates, the Bank cannot afford to act meekly."

Michael Reddell, Croaking Cassandra economic commentary blog (Increase): "Recent CPI and labour market data suggests the Bank will tighten further, to be sure that core inflation is really beginning to turn down. But it is a long way back to 2%."

Dr Oliver Hartwich, The New Zealand Initiative (Increase): "Inflation is still running high and shows no signs of slowing. Also, there is a big gap between the OCR and where it should be according to the Taylor Rule. Besides, the RBNZ needs to underline that it is serious about price stability. For all these reasons, the November increase is a given. The only question is by how much."

Sharon Zollner, ANZ (Increase): "The RBNZ continues to be surprised on the upside by both capacity pressures in the labour market and inflation."

Debbie Roberts, Property Apprentice (Increase): "The results of the last quarter CPI showed that inflation remained practically unchanged, despite the previous increases in the OCR, surprising everyone. The RBNZ needs to do something dramatic to curb spending."

Donal Curtin, Economics New Zealand Ltd (Increase): "Inflation still horrible, labour market still unsustainably hot, and delivering on RBNZ's credibility having indicated (most recently on Oct 5) that further tightening is needed."

Kelvin Davidson, CoreLogic (Increase): "The pressure is still there from inflation, and unemployment is low - so there are no barriers to further rises in the near term."

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