Reserve Bank of New Zealand to cut rates in Q3 but may wait longer: Reuters poll
By Anant Chandak
BENGALURU (Reuters) – New Zealand’s central bank will leave its key interest rate unchanged for a sixth consecutive meeting on Wednesday and wait until the third quarter before cutting it, as it navigates between still-elevated inflation and recession, a Reuters poll showed.
While the Reserve Bank of New Zealand’s (RBNZ) own estimates show inflation is on track to reach its 1%-3% target next quarter, the timing for when policymakers will start reducing rates is hanging on a knife’s edge.
With aggressive rate hikes amounting to 525 basis points from October 2021 to May 2023 having tipped the economy into a double-dip recession, the central bank has little room to take rates higher to address any spike in inflation.
All 29 economists in the March 28-April 4 poll expected the RBNZ to leave its official cash rate (OCR) unchanged at 5.50% on April 10.
While slightly more than half – 15 of 29 respondents – expected the first cut to come by the end of the third quarter, including one who expected it to occur this quarter, the other 14 forecast the cash rate to remain unchanged until the fourth quarter or later.
“We suspect Q2 (inflation) data, due in mid-July, will give the committee enough confidence it has done its job. As inflation risks continue to recede, we expect the Bank to start cutting rates in August,” said Abhijit Surya, an economist at Capital Economics.
“We’re more convinced than ever that the RBNZ’s next move will be down, not up.”
All major local banks expected the first cut later than the poll consensus and market expectations, with the earliest move seen by Bank of New Zealand, ASB Bank, and Kiwibank in the fourth quarter, followed by Westpac in the first quarter of 2025.
ANZ expected the first cut in the second quarter 2025.
Among economists who answered an additional question, just over half – 12 of 23 – said the first rate cut would come in August, in line with market expectations.
One respondent expected it in May and seven were looking to the fourth quarter. The remaining three said the easing will begin in 2025.
The RBNZ’s own projections showed the first reduction in rates coming next year. The central bank has said it needs to keep policy restrictive for some time to ensure inflation expectations become fully anchored again.
Median forecasts showed the cash rate down 50 basis points at 5.00% by the end of this year. The U.S. Federal Reserve is expected to cut its key policy rate by 75 basis points.
“Inflation has fallen quite a lot more quickly (in the U.S.) than it has here … that explains the reason why the Reserve Bank has been much more cautious with respect to talking about interest rate cuts than the U.S. Federal Reserve,” said Kelly Eckhold, chief economist at Westpac.
“The implication of that is that potentially if New Zealand interest rates hold up for longer relative to the United States, there could be some potential for the New Zealand dollar exchange rate to strengthen.”
