ANZ chief flags rebound risk
ANZ chief economist Sharon Zollner (pictured above) has flagged that recent high-frequency data indicated a broadening economic slowdown, suggesting that the downturn is gathering pace.
Unlike past downturns triggered by confidence or income shocks, this one is policy-induced.
“The economy hasn’t experienced a sudden confidence or income shock,” Zollner said. “This downturn is being driven by deliberate policy choices.”
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Uncertain easing trajectory
While the Reserve Bank (RBNZ) recently cut the OCR by 0.25%, Zollner warned that “risks to the disinflation trajectory and the pace of policy easing remain uncertain.”
She explained that as interest rates fall, there’s a risk of the economy rebounding faster than expected, potentially stalling inflation’s return to the target range of 2%.
Risk of rebound
RBNZ’s decision to start cutting rates earlier than expected introduced uncertainty about how quickly inflation will respond.
“There’s a chance the economy could bounce back faster than anticipated, and if that happens, inflation progress may be slower than we need,” Zollner said.
Labour market impact
A key focus for the RBNZ is the labour market, which Zollner says will be critical in shaping future OCR cuts.
“Labour market dynamics remain key,” she said. “While we expect unemployment to rise, the extent of the damage done from past tightening remains uncertain.”
Zollner warned that rising unemployment could weigh down any recovery.
Monetary policy response
Zollner stressed that “monetary policy won’t be on a preset course,” suggesting RBNZ will remain flexible and reactive to the evolving economic situation.
“We’re not locked into a fixed path for rate cuts,” she said. “The RBNZ will respond as data comes in, and the trajectory of cuts may slow if inflation risks rise.”
Read the ANZ report in full here.
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