Kiwibank, ASB, and Westpac forecast deeper rate cuts to combat recession signs and stimulate recovery
As New Zealand grapples with significant economic challenges, the Reserve Bank (RBNZ) is under increasing pressure to implement deeper rate cuts in 2025.
Economists from Kiwibank, ASB, and Westpac are aligned in their forecasts, anticipating a more aggressive monetary response to support a struggling economy.
Economists advocate for substantial rate cuts
Jarrod Kerr (pictured above left), Kiwibank’s chief economist, strongly advocates for immediate action, highlighting the urgency of the situation.
“The RBNZ has lined it up beautifully. Adrian Orr said as much. And that’s as close to a done deal as you get,” Kerr said, emphasising the inevitability of the upcoming rate cuts.
He further criticised the current monetary policy track, noting, “Why cut to 3.5%, and then wait (an eternity in markets) to cut to 3% two years later? We argue the case not to muck around. Cut to 3%, a neutral setting, and be on the watch to move into stimulatory territory if the trade wars bite us.”
ASB and Westpac’s perspectives on future rate cuts
Nick Tuffley (pictured above centre) from ASB predicts continuity in RBNZ’s cutting strategy, suggesting a significant move in the upcoming February meeting.
“We expect the RBNZ will deliver its fourth 50bp cut in a row on February 19, probably the last big cut,” Tuffley said, signalling a potential slowdown in cuts as the OCR approaches what they believe should be a neutral level.
Kelly Eckhold (pictured above right), chief economist at Westpac NZ, provided insights on RBNZ’s forward-looking strategies, highlighting the broader economic signals and their implications for monetary policy.
“Our baseline scenario is that the RBNZ cuts the OCR by 50bp to 3.75% next week,” Eckhold said, underscoring the bank’s expectation for a revised downward OCR forecast profile consistent with reaching around 3.25% by the end of 2025.
Current economic indicators justify cuts
Supporting the call for deeper cuts, the recent economic data has been disheartening, with GDP figures showing significant contractions and inflation pressures abating, suggesting room for more accommodative policy.
The unemployment rate has risen to a four-year high, and wage pressures have cooled, pointing to growing spare capacity in the economy.
Strategic adjustments needed
The consensus among the economists is that RBNZ’s November OCR track is overly cautious.
Kerr, Tuffley, and Eckhold all argued for a more proactive approach to rate cuts, given the current economic backdrop. They agreed that a quick adjustment to a more neutral rate could help stabilise the economy sooner and set the stage for a recovery.
Read more about the RBNZ expectations from Kiwibank, ASB, and Westpac.
