To find out, I’ve taken the bank’s forecasts and compared them with what the Reserve Bank actually did.

Within 6 months, the bank tends to stick to what it said it would do. At that point, they are usually within 0.15% of their forecast.

But over time the bank deviates further and further away from the OCR track. After a year, on average, they’re 0.8% away from what they said they’d do.

To put that in context, if the bank says that in a year’s time the OCR will be 3%, half the time the OCR will be between 2.2% and 3.8%.

This is exactly what the Reserve Bank should be doing. Their goal is to tackle inflation. Their remit is to keep inflation between 1 – 3% in the medium term. That should be easy to do, except for the fact that new things happen every day.

In the last 3 years we’ve had a pandemic, runaway inflation and floods. We’ve had immigration stop, start, and explode.

The Reserve Bank needs to weigh up all the factors and then respond. So it’s unsurprising that the Reserve Bank changes course as new facts emerge.

That’s why the Reserve Bank dropped the OCR in 2019 and 2020, even though the year before they said they would increase it.

In mid-2022, they quickly raised the OCR to 5.5%, even though they previously forecast a peak of 2.6%.

If the Reserve Bank stuck to its guns, blindly following their own forecast, we’d criticise them for not being adaptive. So the fact that they change tack isn’t surprising.

But, while unsurprising, this number crunching is interesting when we apply it to the Reserve Bank’s current forecast.

The Reserve Bank says they’ll keep interest rates high all year. But the money markets are pricing in significant cuts. They think the Reserve Bank will reduce the OCR faster than the bank is currently saying.

Could that happen? Yes. If the Reserve Bank’s record holds, the OCR could be between 4.9% and 6.4% in a year. Right now, the OCR is more likely to fall than increase.

So, there is a good chance the Reserve Bank will throw out its forecast and bring down the OCR sooner than expected. But they will only change tack if the right new facts emerge.

They’ll want to see inflation coming down and coming down fast. If inflation falls faster than expected, the OCR will come down quicker than the Reserve Bank currently says. If, on the other hand, inflation sticks around, the Reserve Bank’s current track becomes more likely.

The next inflation data comes out on January 24. According to their most recent forecast, the Reserve Bank thinks inflation will fall to 5%.

But, if inflation comes out lower than that, or if the economy remains weak, the Reserve Bank will do what they do. They’ll change course, and the OCR will likely come down sooner than what they’re currently saying.

That’s good news for interest rates, borrowers and the housing market.