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The Reserve Bank of New Zealand (RBNZ) is expected to cut the Overnight Cash Rate (OCR) 25 basis points in August with follow-up moves in November and February, according to the latest report from ANZ Research.
ANZ Research had previously expected that the central bank would cut the OCR by 25bp in November, with two further cuts to follow in early 2020. However, the RBNZ turned explicitly dovish on the outlook somewhat earlier than was expected, noting yesterday that “the more likely direction of our next OCR move is down.”
In recent MPS downside scenarios, the RBNZ has highlighted the risk that domestic growth proves insufficient to see inflation push higher (August and November) and that the global environment deteriorates (February).
Clearly, the RBNZ now sees these concerns as even more pressing. In particular, a trifecta of factors is key to their new take on the situation: the marked slowing in GDP growth in the second half of last year; the deteriorating global growth outlook; and the currency implications of being out of step with global central banks, the report added.
So far, negative implications of the evident global slowing still belong in the “risk” camp. Commodity prices are so far holding up reasonably well and tourist growth is down but certainly not out. Ditto the NZD: it has held up, but in trade-weighted terms it has been gyrating in current ranges since mid-November – it hasn’t suddenly surged in recent times.
On the other hand, the recent slowing in New Zealand GDP growth is more concrete, having decelerated from 3.4 percent annual growth to 2.3 percent over the past year.
"Greater downside risks leading to an acknowledgement of a greater chance of an OCR cut is one thing, but actually cutting the OCR is another. On balance, we expect it will take a little longer for the RBNZ to be sure that OCR cuts are the right path forward," ANZ Research further commented.
