November rate cut predicted
ANZ Research has revised its forecast, predicting that the Reserve Bank (RBNZ) will lower the OCR by 25 basis points in November, rather than in February.
“The balance of risks is tilted towards an earlier cut,” ANZ NZ chief economist Sharon Zollner (pictured above) said.
Inflation data drives change
Softer-than-expected second-quarter inflation data and weakening activity indicators have prompted the forecast revision.
“There were plenty of details across the release showing inflation pressures are reducing,” Zollner said, adding that the latest consumer price index data should ease previous concerns about upside domestic inflation risks.
Market reacts to RBNZ tone
RBNZ’s July Monetary Policy Review surprised markets with a dovish tone, suggesting future monetary policy restraint will align with declining inflation pressures.
The committee discussed risks that tight monetary policy could impact domestic demand more than expected.
“The market has its dove-tinted glasses on,” Zollner said.
Economic indicators suggest cut timing
Recent activity, the labour market, and inflation indicators have shown signs of softening.
ANZ’s Business Outlook survey, Truckometer, and card spending reports indicated a downturn.
“The committee could be ready to jump, but for now it seems likelier if the RBNZ is confident things are well in hand,” Zollner said, suggesting an October or November cut is more probable.
How far, how fast
A critical question is how quickly and far the OCR will ease.
ANZ forecasts a series of 25 basis-point cuts at each meeting until the OCR reaches 3.5%.
“ANZ Research will reassess the medium-term outlook in mid-August,” Zollner said, noting that the market is pricing in a chance of larger cuts if economic conditions worsen significantly.
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