No one expects the Reserve Bank to take action when it releases its latest monetary policy statement and economic forecasts next Wednesday, but there is a heated debate about when it will start cutting interest rates.
Saturday, November 25, 2023, 6:16 a.m
by Jenny Ruth
Earlier this week, financial markets had already priced in the first official rate cut (OCR) in May next year, but by Friday morning they had scaled that back to August, with nearly 60 basis points of cuts priced in by the end of 2024, less than 75 points a few days before.
In the eyes of most economists, this is still a bit premature. ANZ chief economist Sharon Zollner, for example, believes the first cut won’t come until February 2025.
“In our view, cuts remain a long way off; In fact, we have pushed back our estimate of when they will occur by a quarter,” says Zollner in her preview.
While Kiwibank economists had planned for a cut in May 2024, they now say: “May looks too optimistic at this point. “The RBNZ will need more data, particularly inflation data, before changing direction.”
The consumer price index was still almost three times higher at 5.6% in the September quarter than the midpoint of the RBNZ target of 1% to 3%.
But ASB chief economist Nick Tuffley believes weaker data recently has made the RBNZ “more comfortable with its standby position” and that “risks are leaning towards a slightly earlier start to the easing cycle than early 2025.”
Westpac’s Kelly Eckhold is on the more hawkish side, saying the RBNZ will “talk hard about doing little” and he still has a slim chance of another OCR hike in February 2024 in his forecasts.
“However, this call for higher interest rates is on a knife edge as the RBNZ has plenty of reasons to stand still,” says Eckhold.
On the other hand, “some important medium-term inflation risks remain, which we believe will result in the Bank being cautious about confirming the pricing of the market for rate cuts next year.”
BNZ research director Stephen Toplis believes weaker-than-expected employment data for the September quarter will give the RBNZ reason to be more dovish than it was in August.
“The labor market is easing more than expected and inflation has surprised to the downside,” Toplis says, adding that a cut in the December quarter next year “is now a real possibility.”
Sydney-based HSBC’s Paul Bloxham, known for calling New Zealand’s economy “a rockstar” in 2013/14, is more certain of a cut in the December 2024 quarter, although he expects the RBNZ to take part in a ” “modest tendency to tighten”.
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