RBNZ warns interest rates unlikely to return to pre-covid levels

Reserve Bank chief economist Paul Conway has added his voice to those warning that  interest rates, and therefore mortgage rates, aren't likely to return to pre-covid levels.

That's because the neutral level of the official cash rate (OCR), the point at which it neither stimulates nor constrains the economy, has risen a little following the pandemic and Conway attributes that to weak productivity growth and the aging population.

He estimates the neutral OCR level lies somewhere between 2.5% and 3.5%.

“Without future shocks, the neutral interest rate indicates where the OCR is likely to settle to keep inflation at the 2% target midpoint,” Conway said in an online speech.