A significant interest rate cut by the Reserve Bank appears increasingly likely this week, as both economists and financial markets advocate for a faster decrease in borrowing costs.
According to a Reuters survey of 28 economists, 60% anticipate a 50 basis point cut, while financial markets are nearly unanimous in their expectation of this outcome.
A 50 basis point cut will bring the cash rate down to 4.75%, marking its lowest point since March 2023.
“It’s a pretty significant step up on the pace, but we think it’s quite well justified by the confidence in the inflation outlook,” Westpac chief economist Kelly Eckhold said.
“It looks now like you can be fairly sure that the CPI [consumer price index] will be printing at pretty close to a 2% level in the next three to six months.”
All the major banks—ANZ, ASB, BNZ, Kiwibank, and Westpac—anticipate a 50 basis point cut this week and again at the last meeting of the year in late November.
However, not all experts agree on the rate cut, as the other 11 economists anticipate a reduction of 25 basis points. The principal economist at the Institute of Economic Research, Christina Leung, is among those.
“In the sense that from this recent move with the OCR cut, we’ve already seen such a strong rebound in terms of expectations for the coming months for activity,” Leung stated.
She also believes that it is important to remain more conservative and cautious when evaluating the impact of the easing measures implemented so far, as well as when considering the pace of any future easing.
The Reserve Bank initiated its easing cycle in August with a 25 basis point cut to 5.25%, marking its first rate cut in four years and indicating the possibility of additional cuts over the next two years.