Move would push OCR closer to neutral levels, economist says
The Reserve Bank (RBNZ) is poised to reduce the OCR by 50 basis points at the November monetary policy statement (MPS), bringing the rate to 4.25%, according to ASB economists.
ASB chief economist Nick Tuffley (pictured above) suggested this move will push the OCR closer to neutral levels of 3-4%, a balance needed to stabilise inflation and support the economy.
“A 50bp cut best balances the various risks,” Tuffley said, adding that a more aggressive 75bp cut could overshoot given the economic environment aligns with RBNZ’s earlier forecasts.
Inflation under control, labour market eases
Recent data shows that inflation has steadied near RBNZ’s 2% target mid-point, with core inflation gradually easing. The Q3 inflation rate of 2.2% was in line with expectations, and inflation expectations remain anchored.
Labour market data also supports a 50bp cut, with employment declining slightly, unemployment rising, and wage growth slowing more than anticipated.
“Labour-related inflation pressures are easing more concertedly,” Tuffley said.
Key economic developments since October
ASB economists said several factors reinforce the case for a moderate OCR cut:
- Migration: Net migration has slowed, cooling demand pressures.
- Housing market: Activity remains subdued, with no signs of a consumer-driven boom despite falling interest rates.
- Exports: Strength in dairy and meat export prices bolsters the economy, offsetting some monetary easing impacts.
- Global risks: The re-election of Donald Trump and potential tariff changes introduce uncertainty, though impacts on New Zealand inflation remain unclear.
Future cuts depend on economic trends
Beyond November, Tuffley predicts RBNZ will signal a slower pace of OCR reductions, dependent on data.
Current financial market pricing suggests the OCR could reach 3.25-3.5% by 2025, aligning closely with the RBNZ’s prior forecasts.
“With the process of monetary policy normalization largely complete, we expect a higher hurdle to OCR moves over 2025,” Tuffley said, adding that the RBNZ will likely take an incremental approach to future cuts.
What to watch in the November MPS
The November statement is expected to affirm confidence in inflation stabilising around 2% and emphasise a gradual adjustment toward neutral monetary settings. Phrasings that temper expectations of large future cuts could signal a more cautious approach.
By balancing risks and economic indicators, RBNZ’s anticipated 50bp cut reflects its effort to support the economy while maintaining long-term inflation stability, ASB said. This expectation aligns with forecasts from ANZ, Westpac, and BNZ, which also predict a 50bp cut in November.
For further details, see the ASB economic note.
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