Economist Cameron Bagrie warns of more official cash rate hikes

An independent economist warns more official cash rate (OCR) hikes could be on the horizon as inflation continues to remain "sticky" and doesn't look like it'll come "crashing down".  

The Reserve Bank of New Zealand (RBNZ) is widely tipped to opt for a 25 basis point hike in its next monetary policy review on Wednesday.

It comes after the RBNZ hiked the OCR by 50 basis points in February to take New Zealand's baseline interest rate to 4.75 percent. The RBNZ has now added 450 basis points since October 2021.

Independent Economist Cameron Bagrie told AM on Tuesday it's hard to work out what the central bank will do next.

"I think we're getting close to the peak, but I wouldn't pencil this one to be the last. The Reserve Bank is in an awkward position at the moment because obviously, the headline inflation rate is very elevated, unemployment is very low, the labour market is still very tight and inflation expectations ... is still quite uncomfortable," Bagire told AM co-host Melissa Chan-Green. 

"On the flip side, they know monetary policy works with a lag, so what they do tomorrow is actually going to impact the economy 12 to 18 months down the track and that's where you get into what's called the art to monetary policy as opposed to the science." 

Many economists are tipping the OCR to hit 5.5 percent in 2023.

With all the "ructions" happening in the financial markets around the globe, Bagrie believes interest rates will stay high until the end of 2023. 

"After we see SVB Bank (Silicon Valley Bank) and all these other financial market ructions around the globe, financial markets are now starting to say, well it looks like central banks, we think you're pretty close to a top but when you're pretty close to a top, the natural inclination across financial markets is to say you're going to be cutting," Bagrie explained. 

Bagrie warns with inflation being "sticky", interest rates won't come "crashing back down" any time soon and it won't be until late 2023 or 2024 when Kiwis will see some relief.

"So while we can debate whether the Reserve Bank is done or not, I think the real big issue here is when could interest rates come back down on the other side? My personal view is that inflation is going to be a little bit stickier," he said.  

"It's going to be a little bit more problematic coming down, a little bit more gradual. If that scenario plays out, then I don't think interest rates are going to come crashing back down on the other side and that's what financial markets are sort of anticipating. It's almost like they're thinking we're going to see some sort of economic accident, like what we've seen over the past 30 years." 

Watch the full interview with Cameron Bagrie in the video above.