Another 25-basis-point cut to the Official Cash Rate (OCR) appears almost certain in the Reserve Bank of New Zealand’s upcoming Monetary Policy Statement scheduled for Wednesday.
This reduction would bring the OCR down from 3.50% to 3.25%.
The commentary accompanying the forthcoming announcement is expected to be closely scrutinised, especially as this will be the first Monetary Policy Statement fronted by new Governor Christian Hawkesby.
“There is always significant uncertainty about the economic outlook and the corresponding appropriate monetary policy. But rarely is there the sort of uncertainty we are experiencing now, thanks largely to Donald Trump’s tariff policy gyrations,” BNZ head of research Stephen Toplis said.
Although markets have remained relatively stable since China and the US agreed to a tariff truce, Toplis warned that the overall effect is still likely to weigh negatively on economic growth both globally and in New Zealand.
“On this basis alone, it is reasonable to assume the RBNZ will either lower its growth forecasts or, at the very least, raise the perceived risk of lower growth,” Toplis stated.
Expectations for the Official Cash Rate (OCR) have been revised downward since February, when the Reserve Bank of New Zealand signalled a possible pause at 3.25%, with the potential for a cut to 3% by year-end. Since then, forecasts have shifted further, with many now anticipating the OCR could fall to between 2.75% and 2.5% by the end of the year.
“We, and the Reserve Bank, follow the BNZ-Business NZ PMI and PSI closely for indications of the current state of the economy.”
“Unfortunately, these indicators, when combined, suggest that the acceleration in growth that we had bargained on starting soon may be under threat,” Toplis said.
Meanwhile, Westpac’s Kelly Eckhold anticipates the RBNZ will continue to view the economy as on a recovery path.
“However, it will probably view the recovery in domestic activity as somewhat weaker than hoped, but stronger than expected in externally focused sectors.”