OCR surprise a mixed bag for retailers

A retail industry group says keeping the official cash rate (OCR) at 2.75 percent will be a mixed bag for many shops.

The Reserve Bank surprised economists on Wednesday when it narrowly voted not to increase the OCR, which immediately caused the New Zealand dollar to drop 1.3 percent, landing at 56.1 cents against the US dollar.

Retail NZ chief executive Carolyn Young said that would tighten margins for stores that imported their products from overseas.

"In New Zealand we don't manufacture a lot, so if you think about the retail environment anything including groceries, apparel, footwear, DIY stores, a lot of the products are imported from overseas, books come in from overseas, stationery, all of those items are going to be at a higher price because of the exchange rate, and so that has an impact right now," she said.

Different sectors within retail would be impacted differently, she said.

"If you're a car dealer, for example, if you're placing orders, because a lot of car purchases now are done on order rather than having stock on hand, would you want to hold off a couple of days and see what happens to the exchange rate?" she asked.

"Most retailers will have their stock in, that'll be ordered and paid for now, but if you're ordering your autumn stock then that could have a further impact."

But she said a stable OCR could give customers more confidence heading into the holiday season.

"From a consumer perspective, they'll be thinking 'okay well that's good, I know my mortgage rate isn't going to increase', or 'my rent should stay stable', so that could create confidence for consumers," she said.

"Consumer confidence is, of course, directly impactful into a positive outcome for retailers, so there are some upsides, potentially, to not increasing interest rates right now."

That confidence may be short lived, with many economists now predicting an OCR increase in early December.

"We'll probably get an OCR increase at the next meeting, so it's probably only a temporary reprieve," Cotality's chief property economist Kelvin Davidson said.

The good news, Davidson said, was that fixed mortgage rates were unlikely to spike, because they had already been adjusted under the assumption the OCR would increase in October.

"Financial markets are forward looking, fixed mortgage rates tend to reflect that future so they move ahead of the OCR anyway, and so this possible further tightening we've got to go has probably already, to an extent, been priced in, so I don't think mortgage rates are going to spike in the next little while," he said.