ANZ economists anticipate 50-basis-point rate cut next week
ANZ anticipates a 50 basis point (bp) rate cut to the OCR by the Reserve Bank (RBNZ) next week, bringing the rate to 4.25%.
This aligns with market pricing and economist forecasts, as well as RBNZ’s October guidance.
While a 50bp cut is seen as the “path of least resistance,” ANZ chief economist Sharon Zollner (pictured above) noted, “If there is going to be a surprise, a larger cut seems likelier than a smaller one.”
Data insights drive ANZ’s rate cut forecast
Recent economic data presents a mixed picture but largely supports the expected cut. Key indicators include:
- GDP: Q2 GDP was slightly stronger than RBNZ’s forecasts but still weak at -0.2% q/q.
- Housing: House prices dipped, but stronger sales mean forecast revisions may be minimal.
- Labour market: Unemployment came in lower than expected, driven by a drop in labour force participation rather than stronger employment. Wage growth was stable.
- Inflation: Q3 CPI was marginally below expectations due to technical adjustments, not economic trends.
Despite these factors, RBNZ appears confident that the economy has absorbed sufficient monetary tightening, reducing the need for emergency-style cuts.
Inflation and capacity outlook
Direct inflation indicators remain modest.
ANZ’s Business Outlook Survey revealed firms expect to increase wages by only 2.6% over the next year.
“While it’ll take some time for domestic inflation to fall back to where it needs to be, they’re winning,” Zollner said.
Labour market capacity indicators are favorable, suggesting the economy can grow without reigniting inflation. Sectors like construction are showing signs of recovery, though retail remains sluggish.
Markets brace for policy decisions
Markets are largely pricing in a 50bp cut, with a 12% chance of a larger 75bp reduction.
Traders will scrutinise whether RBNZ considered other scenarios, such as a smaller 25bp rate cut.
“If 75bp is discussed but not delivered, markets may expect another 50bp cut in February rather than the standard 25bp,” Zollner said.
FX and rate expectations
ANZ expects little immediate impact on the New Zealand dollar, as a 50bp rate cut is already factored in. However, further reductions in short-term rates could weigh on the Kiwi, particularly if US markets reassess Federal Reserve policy.
The OCR’s trajectory will continue to depend heavily on incoming data, with a 12-week break until the next RBNZ meeting leaving room for potential adjustments.
“Nothing is set in stone regarding the path ahead,” Zollner said.
Read the ANZ research in full.
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