It might only cause unnecessary fear
Despite expectations that the coronavirus would quickly affect the official cash rate (OCR), some experts still insist that the Reserve Bank of New Zealand (RBNZ) would not announce an out-of-cycle cut.
Finder’s RBNZ Official Cash Rate Survey, which interviewed 12 experts and economists, revealed that 90% of the respondents believe there won’t be an emergency rate cut before the official announcement on March 25. However, they expect the central bank to cut at least 25 basis points, dropping the OCR below 1% for the first time in New Zealand’s history.
The responses are in contrast to last month’s survey, where 23% of the respondents believe that the RBNZ would not drop the OCR at least until August 2020.
Some experts pointed out that an emergency rate cut might cause unnecessary fear among consumers and businesses.
Tony Alexander, an independent economist, said an out-of-cycle cut “risks generating the sense of unease the RBNZ produced with its 0.5% cut last year.”
Jarrod Kerr, chief economist at Kiwibank, aired the same sentiments: “[It would] signal panic in a world already on the verge of panic.”
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Dr Oliver Hartwich, executive director at The NZ Initiative, said he expects a rate cut on March 25 because it would align with the monetary decisions of major international banks. However, he’s uncertain if the decision would be useful as New Zealand heavily relies on tourism and foreign trade.
“The RBNZ cannot create those tourists that will no longer arrive on our shores. It cannot restore supply chains either or stimulate the economies of our trading partners. Therefore, even as the cut looks unavoidable, I am not convinced it will be greatly effective,” he explained.
Debbie Roberts, investment coach at Property Apprentice NZ, added: “Although I previously predicted no OCR cuts until 2021, I now think that COVID-19's global impact would push RBNZ to cut the OCR (maybe only by 0.25) on March 25 to reduce the economic effect of the global spread of the virus.”
