Rate cut by Christmas?

Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, from left to right) noted significant progress in US inflation, which may prompt the Federal Reserve to cut rates by September.

“US inflation makes encouraging progress, opening the door to Fed rate cuts,” the Kiwibank economists said.

RBNZ’s softer tone

RBNZ’s recent review showed a softer stance, increasing the likelihood of a rate cut by the end of the year. The June quarter inflation data, set to be released this week, is in sharp focus.

“The RBNZ softened its language, just a touch, at the July review,” the economists said.

Domestic inflation and core concerns

Domestic inflation remains a key concern for the RBNZ.

The economists noted that RBNZ’s forecast for the June quarter may be higher than actual figures, leading to potential policy changes.

“Our estimate is some distance from the RBNZ’s May forecasts,” they said.

Signs of easing pressures

Easing pressures in housing and rents, along with a weakening labour market, contribute to a positive outlook for inflation.

“Growing spare capacity should see a more meaningful slowdown over the second half of the year,” the economists said.

Market reactions and future expectations

The financial markets are already reacting to potential changes, with traders anticipating rate cuts.

“Markets have moved to price in -10bp (-8bp prior) of cuts for August, -29bp into October (-16bp), and -62bp into November (-39bp),” the Kiwibank economists said.

Key data and events

Upcoming data releases, including the June quarter inflation print and labour market data, will be crucial in determining RBNZ’s next steps.

“Wednesday’s update should be confirmation that inflation continues to move in the right direction,” the Kiwibank economists said.

Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.