ANZ economists believe the rapidly escalating coronavirus outbreak could force the Reserve Bank of New Zealand to cut the official cash rate (OCR) by 0.5 per cent this month.
The latest developments have prompted ANZ analysts, led by Sharon Zollner, to review their OCR forecast for 2020. The bank currently expects a 50 basis point cut this month, and a smaller one (25 basis points) in May. This would take the OCR to just 0.25 per cent – potentially pushing mortgage rates at their lowest levels ever.
“Although New Zealand is better placed than many countries to weather this shock, we see clear risks of a larger slowdown or even recession,” ANZ economists explained. “Fiscal policy will need to do the heavy lifting, but lowering the OCR will ease financial pressure, facilitate a lower NZD, aid confidence at the margin, and support the recovery.”
It’s only been a few weeks since the Reserve Bank decided to keep the OCR at 1 per cent. In that occasion, governor Adrian Orr downplayed the impact of the virus outbreak on New Zealand’s economy, predicting it would be of “short duration, with most of the impacts in the first half of 2020.” However, the situation seems to have worsened since then, both in terms of global scale and impact on the Chinese economy.
Meanwhile, across the ditch, the Reserve Bank of Australia cut interest rates to 0.5 per cent this week, also in response to the growing threat from the coronavirus epidemic to the global economy. It’s been the first developed-market central bank to do so, but experts say other major central banks may follow.
A further OCR cut in New Zealand may push mortgage rates even lower than they currently are. As always, our Mortgage Link advisers will stay on top of the latest updates.
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