Bank economists say a larger move could be needed to revive stalled recovery
RBNZ’s expected cut to 2.25% this week may not be enough, with Kiwibank economists warning the economy could require “shock treatment” – including a possible 50-basis-point move – to restart momentum after a stalled recovery and months of restrictive monetary policy.
This week’s decision will be the Reserve Bank’s final call of 2025, with markets fully pricing in a 25bp reduction. The meeting will also mark Governor Christian Hawkesby’s last outing before Anna Breman takes over on 1 December, though her first influence on policy will not come until February.
Policy only turned stimulatory in October
Kiwibank economists Jarrod Kerr, Mary Jo Vergara and Sabrina Delgado (pictured left to right) say the cut requires little justification given the weakened state of the economy.
“A cut to 2.25% next week is perfectly priced by markets... the Kiwi economy still needs more support,” they said in a Kiwibank report.
Although RBNZ has delivered 300bps of easing, they argue policy remained restrictive for most of the year.
“It is only after the cut to 2.5% in October that policy moved beyond neutral ground and into more stimulatory territory,” they said.
The economists note that the delayed shift has had real consequences.
“The move came too little too late from the RBNZ. And the delay has cost us," they said. "The recovery we anticipated for this year stalled, activity lost momentum, and Kiwi households and businesses have suffered further.”
Kiwibank: A 50bp cut should be on the table
In unusually direct language, the economists argue the central bank should consider going further next week.
“So why not another 50bp move? Why not, indeed,” the economists said. “It’s certainly within the realms of possibility, and should be on the table for discussion by the RBNZ’s MPC.”
The economists say a move to 2% would “clear the decks” for the incoming governor and give the economy a stronger confidence boost.
“Why not get us there, cut with confidence, to fuel confidence. It’s just the sort of shock treatment the economy needs,” they said.
Inflation not a barrier to easing, Kiwibank says
While headline inflation is sitting at 3%, Kiwibank notes the rise is driven by volatile components.
“Domestic and underlying core inflation… continue to cool. And importantly, despite the lift in headline, surveyed inflation expectations remain well anchored at the 2% target midpoint,” the economists said.
They highlight continuing labour-market slack as further justification to cut.
OCR track expected to fall again
A major focus for brokers will be the refreshed OCR track, reflecting RBNZ’s view of where rates are heading.
Kiwibank expects:
- The track to be lowered due to October’s 50bp cut
- Continued reference to “reductions” – plural
- A terminal rate near 2.15%, in line with market pricing
A more dovish signal could push wholesale rates back toward their October lows and weigh on the Kiwi dollar.
Downside risks dominate
Kiwibank warns the economy has yet to show convincing signs of recovery.
“The balance of risks to the economic outlook are tilted to the downside,” the economists said.
The summer will be critical for determining whether further easing is required in 2026.
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