ANZ’s big rate hike call didn’t come to pass. The Reserve Bank kept the Official Cash Rate on hold at 5.5 per cent and, if anything, softened its stance – just slightly.

To
her credit ANZ chief economist Sharon Zollner, who had forecast hikes for both this February call and again in April, wasn’t shy about owning it.

“We got this one totally wrong,” she said.

“We had expected the RBNZ would hike the OCR today, or failing that, up the ante on hikes with a higher forecast peak in the OCR.”

Instead, the RBNZ Governor Adrian Orr said: “The risks to the inflation outlook have become more balanced.”

In the Monetary Policy Statement, he noted core inflation and most measures of inflation expectations had declined.

“The RBNZ put a lot of weight on the downside surprise in [third-quarter GDP], revising down their estimate of how stretched (and thus inflationary) the economy is despite what’s been a surprisingly mixed bag of capacity indicators,” Zollner said.

“That plus the lower starting point for tradable inflation offset the upward surprises in other areas, such as the higher starting point for non-tradable inflation and lower unemployment.”

The RBNZ’s updated OCR track was lowered, implying around a 40 per cent chance of a further OCR increase – down from around 75 per cent previously.

The market latched on to the softer track, sending the dollar and two-year swap rates down.

Soon after the release, the New Zealand dollar was at US61.20c, down from US61.80c. In interest rates, the two-year swap rate, which can influence home mortgage rates, dropped to 5.05 per cent from 5.21 per cent.

But the February Monetary Policy Statement offered little for stressed mortgage holders to cheer about, with forecasts that still see rates on hold for the rest of the year at least.

“What’s the upshot for the property market? In truth, not a lot has changed based on today’s decision,” said Core Logic NZ chief property economist Kelvin Davidson. “Mortgage rates still seem to be roughly at a peak, although they might not fall much any time soon either.”

Less hawkish, as opposed to dovish, was how Westpac chief economist Kelly Eckhold put it.

“The overall tone of the Statement remains somewhat hawkish – but much less hawkish than market fears,” he said. “Even though the OCR was left unchanged this time, the RBNZ still sees a risk of a need for a higher OCR to 5.75 per cent in [the third quarter] this year.”

Governor Orr noted in his press conference that while there was a consensus on the Monetary Policy Committee about keeping rates on hold, there had been some discussion of a hike, and none around a cut.

“The data we have seen gives us more confidence around the view that we have held for a year,” he said.

BNZ economists noted a subtle “whiff” of change in tone around inflation risk.

“The Bank stated that inflation remains above the 1 to 3 per cent target band, limiting the Committee’s ability to tolerate upside inflation surprises,” said senior economist Doug Steel.

“But this has a whiff of a change from the previous no tolerance to upside surprises, to now limited tolerance. Perhaps most importantly, the Bank now sees the risks to the inflation outlook as more balanced.

“Interestingly, the central bank’s assessment on immigration has become more balanced regards its influence on inflationary pressures – citing both the supply and demand influences. It seemed more concerned about the inflationary consequences last time around,” he said.

Meanwhile, ANZ pulled back its forecasts despite seeing some risks that sticky inflation will surprise on the upside.

“For our part, we continue to think there’s a high chance that the data will demonstrate that 5.5 per cent is not sufficiently high to return inflation to target in an acceptable timeframe,” she said.

“However, the evidence threshold for the RBNZ committee is clearly much higher than we appreciated, so we have reluctantly parked further hikes back in the risk basket, pushing cuts out to mid-2025 (and slowing them) as the trade-off for not acting proactively now is that rates are required to be high for longer to do the job.”

READ MORE: Explained: What is the OCR work and how does it move mortgages?

Liam Dann is Business Editor-at-Large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.