A bid to cushion the economy through the impact of Covid-19 is likely to see the Reserve Bank cut its benchmark cash rate below zero, bank economists are now predicting.
On Tuesday ASB and ANZ joined Westpac in predicting that the official cash rate would be dropped below zero early in 2021. Westpac was the first to formally predict a negative OCR.
Economists at BNZ said on Tuesday that they were currently reviewing the bank's prediction, hinting that it was likely to follow a similar path in predicting a negative OCR.
"It now looks highly likely that they will go negative," BNZ head of research Stephen Toplis told the New Zealand Herald.
The move follows statements from the Reserve Bank last week expressing a preference for a negative cash rate, along with a new "funding for lending programme" which would lend money directly to the banks in order to ensure that a lower benchmark rate would be passed on to customers.
ASB economist Mark Smith said the bank had been warning for some time that the current OCR was unlikely to be enough to boost the economy given the hit posed by Covid-19.
Smith said the bank was growing in its conviction that the Reserve Bank's own forecasts would prove to be too optimistic "even if the recent community outbreak of Covid-19 in NZ has a modest and short-lived impact".
Earlier this year the Reserve Bank slashed the OCR by 75 basis points to 0.25%, and promised it would stay there for at least 12 months.
It also warned banks to have their systems operationally ready for a negative OCR by December this year.
ASB has predicted that in April 2021 the Reserve Bank would slash the OCR by another 75 points to 0.5%.
ANZ meanwhile predicted April would see a 50 basis point cut to -0.25% and it was possible that a further 50 basis points of cuts could follow.
"The RBNZ has ruled out changing the OCR before March 2021, but expressed a preference for a package of a lower OCR and a bank 'funding for lending' programme, should they conclude that further stimulus is required at that point," ANZ chief economist Sharon Zollner said in a note on Tuesday.
"We think they will."
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The whole fiscal - banking construct is based on the concept of an interest rate in positive territory. What happens when that construct is turned on its head? What is the logical conclusion to negative interest rates, savers punished with the steady loss of slices of their principal and borrowers rewarded with little bonuses for their choice to buy now and pay later? Won't depositors be pushed out liquid investments into the speculative investment property market to buy up real estate and decrease housng affordibility further? If nothing else negative interest rates represents the crossing of a threshold to uncharted territory.
Why save any NZD in a bank account? You loose 1-2% pa after inflation (CPI) or 3-4% pa using real (your grocery bill/rates) inflation rates. Negative rates have destroyed the efficient functioning of Japan & Europe as debt skyrocketed. Will that be NZ's fate? Only worse as we are not a reserve currency.