Economic data supports easing OCR soon
ASB chief economist Nick Tuffley (pictured above) has predicted that the Reserve Bank (RBNZ) will begin cutting the OCR this week, starting with a 25-basis-point reduction.
“We have tipped over to forecasting that the RBNZ will indeed start cutting the OCR this week,” Tuffley said, noting that the cuts could continue in subsequent meetings.
Economic data supports easing
Recent economic data, including weaker GDP projections and falling inflation pressures, have reinforced the case for a rate cut.
“The data since the July review have not been a smoking gun but do emphasise that economic activity is coming off the boil more quickly,” Tuffley said, adding that this points to the need for an orderly easing cycle.
Inflation expectations under control
With inflation expectations now well anchored, Tuffley argued that RBNZ has less reason to keep rates high.
“Inflation expectations are well anchored and the RBNZ shouldn’t have any concerns that wage- and price-setting behaviours will make its job tough,” he said, indicating that the central bank might be ready to ease monetary policy.
Tactical considerations for RBNZ
Tuffley highlighted the tactical advantage of starting the easing cycle sooner rather than later.
“The longer the RBNZ waits to cut the OCR, the more risk it finds itself having to cut by much larger amounts,” he said.
Market reactions and future outlook
While market pricing already anticipates a rate cut, Tuffley believes RBNZ will proceed cautiously.
“Even if the RBNZ cuts, it is unlikely to give a green light for the extent of cuts built in,” he said, stressing that the central bank is likely to maintain a data-dependent pace in its first easing cycle post-COVID.
Read the ASB analysis in full here.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
