Negative OCR

PHOTO: HAGEN HOPKINS/GETTY IMAGESReserve Bank governor Adrian Orr may have to go back on his pledge not to move the OCR for 12 months, Dominick Stephens says.

New Zealand’s official cash rate could drop to -0.5 per cent later this year, Westpac says, as the country fights to recover from the impact of Covid-19.

Chief economist Dominick Stephens said a negative cash rate would be a natural step as part of the “massive stimulus” being delivered to the economy from the Government and the Reserve Bank’s quantitative easing.

He expects to see a 16 per cent drop in GDP in the June quarter, followed by a 13 per cent increase in September. Recovery in earnest would begin in 2021, he said. The economy would probably not return to its pre-Covid-19 size until 2022.

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“Unemployment, business failures and falling house prices will start to have a second-round effect on the economy and keep things subdued into early 2021.”

Unemployment would peak at 9.5 per cent, he predicted, and it could be years before it returned to below 5 per cent.

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