Could RBNZ cut in Aug?

Shifting inflation dynamics in the New Zealand economy means August is the likeliest date for the country’s central bank to move to lower interest rates, according to ANZ NZ Chief Economist, Sharon Zollner.

Last week, ANZ Research brought forward its forecast for the Reserve Bank of New Zealand to lower interest rates from February 2025 to August 2024, and said it expects the official cash rate to hit 3.5 per cent by August 2025.

Speaking on the 5 in 5 with ANZ podcast, Zollner said the bank’s forecasts suggested inflation will be back within the RBNZ’s target band by the September quarter, within an economy “running at below capacity”.

“We judge that, at that point, the Reserve Bank would be comfortable that they've done enough,” she said.

Zollner acknowledged widespread expectations among market participants that cuts may occur before the August date – with May a popular estimate – but warned while “we've made good progress on getting inflation down, there's still a very long way to go”.

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Recent data show the RBNZ’s stance is finally having a marked impact on economic activity, Zollner said, particularly the recent GDP indicator.

“That conundrum that the Reserve Bank had – ‘why isn't monetary policy working better?’ – is gone, basically,” she said. “They are getting traction, clearly.”

But any sudden uptick in activity could force the RBNZ to reconsider their approach – including, according to Zollner, the possibility of more rate hikes, even if that’s unlikely at this point.

“The Reserve Bank will remain cautious of the risk that the economy could rebound before they’ve actually done enough,” she said. “So they will want to leave all options on the table,” she said.

“We've got CPI data coming up very soon and we're not expecting any nasty surprises for the Reserve Bank at all. But if there was one, then yes, they could hike again.”