Why this economist doubts the OCR will rise as quickly as some have predicted

PHOTO: Frances Sweetman. Photo credit: The AM Show

An economist has cast doubt on forecasts the official cash rate (OCR) is set to skyrocket, citing New Zealand’s high levels of mortgage debt.

Unemployment unexpectedly fell to 4 percent in the June quarter, raising fears increased wage costs will drive inflation beyond the Reserve Bank’s (RBNZ) target of 1-3 percent.

ASB on Wednesday said it now expects the RBNZ to lift the OCR three times before the end of the year, starting with a 25 basis point increase later this month, then again in October and November, bringing the OCR back to where it was before COVID-19 hit.

“As a consequence of the tight labour market, the rate of wage increases in the private sector has lifted sharply and by more than we expected,” said senior economist Jane Turner.

Before Wednesday’s figures were released, unemployment was widely tipped to fall just a fraction – from 4.7 to 4.5 percent.