OCR: ASB predicts interest rate cuts 'a mid-2024 story'

One of New Zealand's leading banks is warning homeowners are unlikely to see any mortgage rate relief until the middle of next year.

ASB's predictions come ahead of Statistics NZ's latest labour market figures, set for release on Wednesday.

The bank believes the unemployment rate will rise to 3.5 percent, only slightly up from the current 3.4 percent level.

But ASB said that was still below maximum sustainable levels.

"Annual labour cost growth is expected to remain around record highs, with some upside risk. Our expectation remains that the subpar demand for labour and the surging supply of labour will eventually act to alleviate labour market pressures, which should cool wage growth and core inflation in time," the bank said in a note.

"There looks to be a high hurdle to changes in the OCR (official cash rate) over the next few months. However, if labour market tightness and wage and core inflation fail to cool sufficiently, the OCR peak could be above 5.50 percent this cycle."

ASB said cuts to the OCR won't be "seriously entertained" until the Reserve Bank (RBNZ) is confident inflation - currently at 6 percent - would settle in its target range of between 1 and 3 percent.

But mortgage holders hoping that would be soon might be out of luck.

"This looks to be a mid-2024 story," ASB said of potential OCR cuts.

The RBNZ has been aggressively increasing the OCR since the end of 2021, pausing hikes for the first time in its tightening cycle last month.

But just because hikes have now paused doesn't mean the OCR would necessarily settle at its current 5.5 percent level, ASB said.

"With the RBNZ signalling it felt it had done enough in July, there is a high hurdle to OCR moves in the coming months. 

"OCR cuts are off the agenda for now. And it would take a very strong set of labour market prints and signs that a wage-price spiral was becoming deeply embedded to prompt OCR hikes.

"We would not completely rule out this possibility and can see some upside to local market pricing and the NZD if the data surprise to the upside. A weaker result would see both NZ yields and the NZD lose ground as the possibility of further OCR hikes are watered down."