What next for the OCR?

New Zealand will not get another official cash rate update until February - but economists agree that it is likely to be another 50 basis point cut when it happens.

ASB said that after the latest OCR announcement, it had changed its forecast to a 50bp cut in February, instead of the 25bp it previously forecast.

"The Reserve Bank's public comments… indicate that [it] sees a 50bp cut in February as more of a base case. We take these comments at face value, though stress that the size of the next cut will still depend on how events unfold over an action-packed three months ahead of the February decision."

ASB's economists said beyond February, it expected two 25bp cuts in April and May, to take the rate to a trough of 3.25 percent.

ANZ economists said a 50bp cut in February was their baseline expectation, too.

"One would now have to have markedly different near-term forecasts from the RBNZ to not also have a 50bp cut as the default expectation at this point. And in fact, our forecasts for the data between now and then are almost identical."

They expected another 25bp cut beyond that and a base of 3.5 percent.

"The low for the OCR this cycle will depend very much on the vigour with which the economy responds to the monetary easing, which is highly uncertain."

Kiwibank said it too expected another 50bp move but it had lifted its forecast for the bottom of the cycle to an OCR of 3 percent, rather than 2.5 percent previously.

Infometrics economists said a 50bps cut was the most likely outcome in February but based on the economic projections from the Reserve Bank, a 25bp cut would be more appropriate. "In the meantime, financial markets could latch onto the bank's latest forecast track and price in more cuts to the OCR than they had been. Such a shift could bring shorter-term fixed mortgage rates down further before Christmas."

Although the economists were united in their forecast of another big OCR cut in February, David Cunningham, chief executive of mortgage advice firm Squirrel, said borrowers were still choosing to fix, even for a short time, rather than float their home loans.

Floating rates are around 7.4 percent compared to a six-month fix of about 6 percent to 6.2 percent.

Infometrics principal economist Brad Olsen said given how large the gap between floating and fixing was, it probably did not make sense to float. "It might have made sense when you had a week or two until the next review but three months is a long time."

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