RBNZ OCR to reach 2% next year

No change is likely in RBNZ's OCR at the October Review in two weeks' time. The RBNZ still plans to deliver just one further OCR hike in the current cycle, most likely in December.

The RBNZ's view are long disputed that the lower exchange rate will return inflation to two percent on a sustained basis. Consequently, it was argued that only one further OCR cut will not be enough. Instead, further OCR reductions were expected, in January and March of next year, that would see the OCR fall to 2.0%.

The terminal OCR will be 2.0%. In fact, preliminary work indicates that inflation in 2016 could be even lower than which are currently forecasted, not least because the exchange rate has shot up recently.

"But after the RBNZ speech, and with dairy prices and the housing market so strong, the timing of OCR reductions is expected in 2016. Now the OCR reductions are expected in March and June next year", says Westpac.