RBNZ cuts rates to boost economy
In light of a weakening economic outlook, the Reserve Bank (RBNZ) has initiated an easing cycle by cutting the OCR during its August Monetary Policy Statement meeting.
Christina Leung (pictured above), deputy chief executive (Auckland) and head of membership services at NZIER, said that the move comes as businesses and households tighten spending due to higher interest rates and uncertain employment prospects.
Weak demand and labour market concerns
Businesses have reported a sharp decline in demand, with 61% citing it as their primary constraint. Alongside this, the labour market has shown signs of slackening as firms reduce hiring.
“This turnaround in the labour market is driving an easing in capacity pressures and a continued reduction in inflation,” Leung said.
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Forecasts for continued weak growth and inflation reduction
NZIER forecasts GDP growth to remain weak over the coming year, contributing to a further reduction in inflation.
Households are increasingly opting for shorter-term mortgage rates in anticipation of more rate cuts, which should speed up the transmission of monetary policy.
However, the impact of these lower rates will take time to fully manifest.
Further OCR cut expected in October
Given the RBNZ’s shift in tone and the expectation that inflation will fall within the target band by year’s end, NZIER predicts another OCR cut in October.
“Beyond that, there is more uncertainty about the pace of the easing cycle,” Leung said, noting that future decisions will depend on the recovery of demand.
Click here to read the NZIER Quarterly Predictions, September 2024.
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