Easing cycle signals more to come
The Reserve Bank unexpectedly cut the OCR by 0.25%, now standing at 5.25%.
Westpac NZ chief economist Kelly Eckhold (pictured above) said the cut was not entirely unforeseen, but the speed of the shift caught some off guard.
“This weaker growth profile has increased the MPC’s confidence that inflation will continue to fall to the mid-point of the 1-3% target range,” Eckhold said.
Lower OCR forecast for 2024-2027
RBNZ’s updated forecast reveals a downward revision in OCR projections, with cuts expected through 2024 and beyond.
The central bank now predicts the OCR to reach 3% by Q3 2027, down from earlier expectations.
Eckhold stressed that the “much easier interest rate profile compared to our more conservative OCR forecast assumptions” contributed to optimism in growth forecasts for the coming years.
Inflation expected to decline sooner
Underlying RBNZ’s decision is confidence that inflation will fall below 3% in the September quarter.
“Inflation surprised to the downside, and we’re now expecting it to trend back to 2%,” Eckhold said, while cautioning that domestic inflation remains “sticky.”
Labour market concerns persist
RBNZ predicted rising unemployment, with a peak of 5.4% expected by early 2025.
“The sharp slowdown in job vacancies and fall in filled jobs” were critical factors in RBNZ’s assessment, Eckhold said, indicating continued labour market challenges ahead.
Westpac forecasts more cuts ahead
Westpac expects two additional 25bps cuts by the end of 2024, positioning the OCR at 4.75% by year-end. However, Eckhold remains cautious, stating that “there are risks surrounding any forecast, particularly with domestic inflation.”
Read the Westpac NZ media release here.
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