Shadow Board advocates 50bp OCR cut

With ASB, Kiwibank, and Westpac adding their views on the future of monetary policy in New Zealand

Shadow Board advocates 50bp OCR cut

The NZIER Monetary Policy Shadow Board has recommended that the Reserve Bank (RBNZ) reduce the OCR by 50 basis points to 4.25% in its upcoming November Monetary Policy Statement.

The suggestion reflects easing inflation and weak economic growth, signaling that monetary policy should return closer to neutral levels over the next year.

“Given the 3-month gap between the November and February meetings, a 50-basis point cut now is appropriate to ensure the OCR moves towards neutrality,” said Ting Huang (pictured above left), senior economist at NZIER.

Most Shadow Board members expect the OCR to range between 3% and 4% in a year’s time, cautioning against sharp currency impacts from potential US trade restrictions.

ASB: ‘The path of least regret’

ASB chief economist Nick Tuffley (pictured above right) supports a 50bp OCR cut, emphasising its suitability in the current economic climate.

“The OCR is still restrictive, holding back the economy,” Tuffley said. “With inflation back near target and spare capacity building, a 50bp cut balances the risks. A 25bp move would undershoot, and a 75bp cut lacks urgency given the resilience of recent data.”

Tuffley highlighted muted consumer spending despite lower rates, adding, “Retail sales volumes for Q3 fell 0.1%, showing the challenge of reviving demand.”

Kiwibank: Bold cuts key to economic recovery

Kiwibank economists Jarrod Kerr (pictured, lower left), Mary Jo Vergara, and Sabrina Delgado likened RBNZ’s actions to Tchaikovsky’s 1812 Overture.

“The 50bp cuts are the cannon blasts we need to propel the economy forward,” they said. “We expect the OCR track to shift lower, signaling greater confidence in inflation containment and a move toward the neutral rate of 2.75%.”

The team advocated for the OCR to dip below neutral to provide a stimulus.

“Cutting to 2.5% would help rebuild household confidence and drive business investment,” the Kiwibank economist said.

Westpac: Market expects 50bp, but eyes 2025 outlook

Westpac senior economist Michael Gordon (pictured, lower right) foresees a 50bp OCR cut but notes global uncertainties that may limit further easing.

“Our client survey suggests a consensus for a 50bp cut, though offshore respondents are more dovish than locals,” Gordon said. “Inflation forecasts for 2025 will determine the end-point of cuts. The RBNZ’s OCR track in November will guide market expectations.”

Gordon highlighted inflation sticking near the 2% midpoint and risks from international factors like US trade policies.

What’s next for the OCR?

As RBNZ prepares to release its November monetary policy statement, financial markets are aligned with a 50bp cut, with attention turning to the OCR’s projected path.

“Whether the RBNZ signals a 3.0% or lower endpoint for the OCR will shape expectations for 2025,” Gordon said.

The consensus among NZIER, ASB, Kiwibank, and Westpac is clear: a bold 50bp move this week is essential to balance risks and propel the economy toward recovery.

For more information and to download the NZIER report, click here. More insights from ASB, Kiwibank, and Westpac.

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