Currency talk: Another bank picks a 2% OCR

Jason Walls and ASB's Tim Kelleher discuss the global currency market news on NBR Radio and on demand on MyNBR Radio.

NBR Radio
Tue, 24 Nov 2015

Click the NBR Radio box for on-demand special feature audio: Tim Kelleher on why ASB picks a 2% OCR

ASB Bank has joined Westpac in forecasting the official cash rate (OCR) to be dropped to 2%.

This would be the lowest level New Zealand’s interest rates have ever been at.

This is despite market pricing for a December rate cut of 25 basis points being split evenly down the middle at 50/50.

ASB’s head of foreign exchange sales Tim Kelleher says New Zealand’s persistently weak inflation is behind the OCR call.

He says he has pencilled in two cuts for June and August 2016, along with one in December.

The lower rates will drive down the value of the New Zealand dollar and help to import some “much needed inflationary pressures.”

He expects the kiwi dollar to be down to 61c against the US by the end of the year and then continue to drop into the first quarter.

That of course, depends on the US Federal Reserve.

At the moment, the chances of the US hiking its interest rates – which have been at almost zero for seven years – are pretty high.

In fact, the market is pricing in a 70% chance that the Fed will pull the trigger in its December meeting.

Mr Kelleher says it’s now more of an issue around credibility for the Fed, after failed to hike rate before when “they probably should have.”

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NBR Radio
Tue, 24 Nov 2015