Some say a half-point slash is needed to jolt the economy – others warn against moving too fast
The Reserve Bank of New Zealand (RBNZ) is facing mounting calls for a 50-basis-point cut to the Official Cash Rate (OCR) when it meets on Wednesday, as economists debate how aggressively the central bank should move to stimulate a slowing economy.
The OCR currently sits at 3.00%. A 50-point cut would take it to 2.5%, a level not seen since July 2022. Several analysts argue the RBNZ should act decisively following weak gross domestic product (GDP) data showing a 0.9% contraction in the June quarter.
Infometrics chief forecaster Gareth Kiernan said a larger move would make sense given the economic backdrop. “Last time I looked, the market was pricing in a 60% to 70% chance of a 50 basis point cut, so I would expect to see rates across the board respond to it to some degree,” he said. He added that such a cut would likely signal another reduction in November.
Westpac chief economist Kelly Eckhold also backed a half-point move. “In our view, there doesn’t seem to be a good reason to delay a move to 2.5%,” he said. “Quickly moving the OCR to a stimulatory level will boost confidence and activity before the important Christmas and summer trading period.”
ASB chief economist Nick Tuffley agreed that stronger action was needed, saying, “The fire of recovery needs more accelerant. The OCR needs to go lower than recently thought, to a low of 2.25%, to get monetary conditions more into stimulatory territory.”
But not all experts share that view. Interest.co.nz reported that ANZ chief economist Sharon Zollner said her team expected a smaller 25-point cut to 2.75%. “A 25bp cut with plenty of dovish messaging reduces the risk of needing to change direction abruptly down the track, and it leaves maximum options open,” she said.
NZ Herald reported BNZ senior economist Doug Steel echoed that position, saying, “We’re sticking with our central view of two more 25-basis-point rate cuts, in October and November, for the time being.”
Mortgage broking firm Squirrel chief executive David Cunningham told RNZ whatever happened, it would take more than falling interest rates to reinvigorate the housing market.
Interim RBNZ Governor Christian Hawkesby will oversee Wednesday’s decision, one of his last before Swedish central banker Anna Breman takes over in December.
With inflation easing and growth faltering, the Monetary Policy Committee faces one of its most finely balanced decisions in recent years – and markets are braced for either outcome.
