The old saying of “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck” is something that definitely does not apply to interest rate markets at present. This is the sequence of events that followed the most recent Official Cash Rate (OCR) review.
Wednesday, February 24 - the Official Cash Rate was maintained at 0.25%, the review was titled “Prolonged Monetary Stimulus Necessary”, which also highlighted that the “work to enable the OCR to be taken negative if required is now completed.”
Thursday, February 25 (the following day) – the remit between the Crown and the Reserve Bank is changed to require the Reserve Bank to consider the impact its monetary policy decisions have on house prices. This is widely viewed as being the end of supportive monetary policy.
Friday, February 26 – Reserve Bank Governor, Adrian Orr, speaking at the Canterbury Employers’ Chamber of Commerce said the Reserve Bank are still prepared to cut interest rates and go negative if needed to stimulate the economy. It seems higher interest rates are not the fait accompli everyone was expecting.
Saturday, February 27 – Auckland enters level three COVID-19 restrictions at midnight following a case of community transmission and the rest of the country enters level two restrictions. The ongoing impact of lockdowns on the economy, particularly in Auckland, begins to gain greater media attention, hardly optimal conditions to raise interest rates.
That only covers a period of four days and does not include the extremely strong dairy auction on Tuesday, March 2, which is highly stimulatory for the agriculture sector and NZ economy, which adds to the case for increasing interest rates. As such, concluding which way interest rates will go next is anyone’s guess.
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This article reflects general views and opinions of Maxim Financial Markets Limited at the time of publication. Nothing within the article should be relied upon as a basis for making any investment decision. Please contact us to seek specific investment advice before making any investment decision. A Financial Advisor disclosure statement is available upon request.