Brad Olsen: Infometrics Principal Economist on the possibility of the OCR going up later this year

The Official Cash Rate is expected to rise this year, although forecasters say predicting when is tricky.

Inflation was stronger in the December quarter than expected, at 3.1 percent.

Infometrics Principal Economist Brad Olsen is picking a hike in November - with an outside possibility of one in May. 

He says other signs in the market signal a possible increase. 

"Actual bank rates for longer-term mortgages have already started to increase a touch this year."

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
So there is a warning that interest rates could start
rising as early as May. The warnings come from Inframetric
Sprad Olson, and he's with us. Happy New Year, Brad,
same to you here that Okay, Now, let me see
if I've got this right. You still think most likely
it starts rising in November, but there's an outside chance
it starts rising as early as May.

Speaker 3 (00:32):
Yep, that's broadly correct. At the moment, we think the
conditions will come through this year. That means that yes,
interest rates will have to rise, but not sort of
as quickly. But we've sort of highlighted this potential around
May just because after that inflation figure that came out
on Friday, we've had a lot of questions from people saying, well,
you know, how quickly might things have to adjust? And look,

(00:53):
I've had a few people in the business community go, well,
does this mean that the February monetary policy statement from
the Reserve Bank do they have to you know, whipsaw
around that quickly. And that's why we've just wanted to
highlight that, No, it won't have to happen that quick.
You'd need even stronger can continue data to come through
before the Reserve Bank would make such an abrupt change,

(01:13):
and the earliest you'd probably have enough data to sort
of convince yourself as the bank that they need to
move quicker would be made. So that's sort of the
start of the bookcase, if you will, and then going
all way through the end of this year in terms
of potential. But at the moment it does look like
it's more that latter half. Regardless though expectations are clearly
starting to become earlier than everyone expected in terms of

(01:35):
those interest rate hikes, and that's only on the official
cash rate. Actual bank rates for longer term mortgages have
already started an increase a touch already this year.

Speaker 2 (01:45):
How much of your prediction factors in the fact that
Anna Brennan is reasonably hawkish, Well, in.

Speaker 3 (01:52):
A sense, we've sort of taken a fairly neutral view
there because we haven't heard her speak very directly on
New Zealand data and what that means of her observations
of the economy and inflation. But we'll hear a lot
more of that sort of come February and we will
adjust our views then, But I think probably most importantly,
when heither of you've seen inflation outside the target band

(02:13):
and the Reserve Bank not starting to have to get
going a bit quicker, and probably realistically this view reinforces
what we were saying in at least October, if not earlier,
that further interest rate cuts below three percent really did
start to create an uncomfortable spot where we're probably going to,
as we've done the last couple of years, keep overdoing
this sort of either stimulus or the contraction that comes

(02:36):
from in the economy to try and get us on
an even keel. And I dare suspect that if we
look back at last year's changes, we probably should have
stopped at three because all of those interest rate cuts
after that they haven't hit the economy yet. And if
we're already at three point one percent, it does make
me uncomfortable that that inflationary pressure is already more intense
than anyone would like it.

Speaker 2 (02:56):
Brad, it's good to talk to you, I suppose, despite
the topic. Thank you very much, Brad Olsen Informetric's principle economists.

Speaker 1 (03:01):
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