We now expect more aggressive rate cuts from the RBNZ with growth under pressure. We see two 50 basis point cuts in Q4 2024, bringing the OCR to 4.25% (4.75% previously) by the end of 2024. We maintain our forecast for 125 basis point cuts in 2025, and see the OCR at 3% for end of 2025 (previous 3.5%). The RBNZ’s concerns are now shifting to growth as inflation is expected to decline further, note Standard Chartered macroeconomic analysts Bader Al Sarraf and Nicholas Chia.
Overton Window Has Moved Towards 50 Basis Point Cuts
“We now expect the Reserve Bank of New Zealand (RBNZ) to cut the official cash rate by 50 basis points in back-to-back meetings in October and November. This brings our OCR forecast for end-2024 to 4.25% (4.75% previously ).Inflation is now well positioned to decline within the 1-3% target range in the coming releases. But more importantly, the growth backdrop remains weak.
“We believe this requires an aggressive stance from the RBNZ, as bringing forward the cuts would reduce the risk of a prolonged economic crisis. Consequently, our OCR forecast for the end of 2025 now moves to 3.0% (3.5% previously). This sets a shorter, sharper path to a neutral OCR, estimated between 3-3.5% by the RBNZ We believe the balance of risks is tilted towards more aggressive easing by the RBNZ, as poor economic momentum translates into a gap. of negative production, which puts downward pressure on inflation.”
“The RBNZ is likely to emphasize the importance of acting quickly to provide much-needed relief, as further delays could result in deeper economic contractions. Governor Orr acknowledged during the August meeting press conference that the committee discussed cuts of 50 basis points to start the easing cycle, but 25 basis points was considered the consensus at the time. This was considered a “low risk start” by the RBNZ, further supporting the argument for moving to rate cuts. 50 basis points. We believe data developments since then make it easier for the RBNZ to justify the move to 50 basis point cuts, as was the case in historical policy easing cycles.”
Source: Fx Street
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