The Reserve Bank of New Zealand (RBNZ) is expected to cut the Official Cash Rate (OCR) next week. But for Westpac chief economist Kelly Eckhold, it will be the wrong thing to do.
“The main case for cutting at this meeting is the RBNZ essentially promised it at the February Monetary Policy Statement. However, I believe moving more slowly is more likely to be appropriate notwithstanding those past communications,” Eckhold wrote in a monetary policy preview.
The RBNZ is widely anticipated to lower the OCR from 3.75% to 3.50% during its upcoming review next week. This expectation stems from former Governor Adrian Orr’s commitment during the February 19 OCR review, where he strongly indicated further reductions at both the April and May reviews. However, Orr suddenly resigned and departed the RBNZ last month.
Eckhold has raised concerns about whether an additional rate cut is necessary or should be implemented immediately.
“This OCR cut is likely the wrong thing to do.”
Eckhold noted that recent data indicates an improving economy but also highlights persistent inflationary pressures.
“Given the mandate is solely focused on inflation, it’s hard to make the case for cutting rates at every meeting from here,” he said.
“A cut at the May Monetary Policy Statement is likely still to be justified. But it’s less clear further cuts would be required from there.”
Meanwhile, forecasters and financial markets are predicting a slowdown in both the magnitude and frequency of rate cuts but remain strongly supportive of 25 basis point reductions in April and May.
ANZ chief economist Sharon Zollner said, “A 25 bp cut this month looks baked in.”
“The housing market is going nowhere fast, consumer confidence is in the doldrums, the labour market recovery is fairly sluggish, and the lift in retail spending is gradual.”
BNZ head of research Stephen Toplis stated that the labour market is likely to weaken further, and uncertainty persists regarding the potential impact of U.S. tariffs if they are implemented.
He expected the cash rate to settle at 2.75% – a rate considered neither too restrictive nor too stimulatory.
Toplis also noted that Orr’s resignation last month could potentially influence next week’s decision.