NEW Zealand’s central bank is set to deliver its third big interest-rate cut in a row and signal further reductions this year to rekindle economic growth.
The Reserve Bank of New Zealand (RBNZ) will lower the Official Cash Rate (OCR) by 50 basis points to 3.75 per cent on Wednesday (Feb 19) in Wellington, according to all 22 economists surveyed by Bloomberg. The bank’s fresh projections are expected to show the OCR continuing to fall towards 3 per cent, albeit in smaller 25-point steps.
At the RBNZ’s final meeting of 2024, governor Adrian Orr said policymakers expected to lower the benchmark rate by 50 points in February, following cuts of that magnitude in October and November, provided the economy evolved as anticipated. Economists said that condition has been met, though the re-election of Donald Trump as US president and his threat of tariffs has increased uncertainty over the global growth and inflation outlook.
“Uncertainty breeds caution,” said Stephen Toplis, head of research at Bank of New Zealand in Wellington. “So developments in US policy making are a very good reason for the Reserve Bank not to cut rates any more than 25 basis points per meeting” after February.
The RBNZ will publish its decision at 2 pm local time on Wednesday and Orr will hold a press conference an hour later.
New Zealand endured a deep recession last year, with gross domestic product contracting 2.1 per cent in the six months to September. That helped to cool inflation to 2.2 per cent, close to the midpoint of the central bank’s 1 to 3 per cent target band.
However, economists expect inflation to pick up again this year as a weaker New Zealand currency boosts import prices, giving the RBNZ another reason to take a measured approach to further policy easing.
The RBNZ began cutting rates in August and has said it intends to lower the OCR to a neutral level, which it estimates to be between 2.5 per cent and 3.5 per cent. After a 50-point cut tomorrow, investors see two 25-point reductions in the OCR by the end of the year, with a 40 per cent chance of a third, swaps data show.
“We see the RBNZ projecting an end-2025 OCR of around 3.25 per cent and an unchanged terminal rate of about 3 per cent,” said Kelly Eckhold, chief economist at Westpac in Auckland. “The RBNZ will likely note significant risks associated with global trade policies, although few conclusions will be drawn given the significant uncertainties.” BLOOMBERG
