Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


RBNZ expected to keep OCR at 1% but leave door open

RBNZ expected to keep OCR at 1% but leave door open to more easing

By Rebecca Howard

Sept. 23 (BusinessDesk) - The Reserve Bank of New Zealand is widely expected to keep the official rate on hold at Wednesday's review while leaving the door open for further cuts by signalling a shaky global and domestic economic outlook.

The central bank cut the official cash rate by 50 basis points to 1 percent in August. The size of the move surprised markets, which had been expecting a 25-basis point cut, because larger cuts are usually made only at times of crisis, such as the Christchurch earthquakes or the GFC. All 16 economists polled by Bloomberg expect the rate to remain on hold this week. Market pricing points to around a 25 percent chance of a cut.

“The RBNZ will probably say that it is now watching and waiting to see how its action to date plays out. Its commentary will probably leave the door open to the possibility of further official cash rate cuts, without committing to any specific action,” said Westpac New Zealand chief economist Dominick Stephens. Westpac expects a 25 basis point rate cut in November with the caveat that "it is not a done deal."

ASB Bank chief economist Nick Tuffley also expects no move on Wednesday. Recent developments have been in line with the RBNZ’s outlook and assumptions, suggesting there is time to monitor the impact of the August cut and wait for greater clarity around US-China trade tensions and Brexit, he said.

Tuffley also expects a 25 basis point cut in November and said there is a "long list of reasons why the official cash rate could fall further in 2020."

Capital Economics also sees little chance of a cut on Wednesday, in particular because the second quarter 0.5 percent economic growth was in line with the central bank’s forecasts.

“We suspect it will wait for economic data from the second half of the year before cutting further. Ultimately though, we think the data will continue to disappoint,” it said.

Capital Economics, however, said that a February cut seems more likely than a November cut as “we suspect the data released before the bank’s November meeting will not be weak enough to prompt a rate cut.” By February, it will be clear whether the economy faltered in the second half of 2019.

ANZ Bank New Zealand chief economist Sharon Zollner also expects no move on Wednesday. “The RBNZ will reaffirm its willingness to cut further, should the outlook warrant, but it will also want to assess how earlier stimulus is transmitting though the broader economy before moving again,” she said.

“There’s time to observe how rate cuts are filtering through to activity and confidence, and there’s no smoking gun in the data to warrant an urgent move,” she said.

However, she expects the bank to cut in November and February and then again in May, taking the official cash rate to 0.25 percent.

“Looking ahead we’re confident that an OCR of 1 percent will not be the low of this cycle. The weak global outlook, gloomy business activity picture, and changes to bank capital requirements are likely to add further headwinds that a lower OCR will need to try and offset,” she said.

The International Monetary Fund this weekend signalled downside risks to New Zealand's economic growth, largely reflecting heightened uncertainty in the global economic outlook. It underscored that "economic growth is only expected to remain close to potential on the back of a timely increase in macroeconomic policy support.

"With downside risks to growth, employment, and inflation, insufficient monetary accommodation still is a bigger concern than the upside risk to inflation if the monetary policy stance were to turn out to be too expansionary," the report said.



© Scoop Media

Business Headlines | Sci-Tech Headlines


Marine And Freshwater Reports: EDS Calls For Urgent Action On Marine Management

“There are some big issues to address. These include many marine species and habitats that are in serious trouble. Of the sample investigated, the report finds that 22% of marine mammals, 90% of seabirds and 80% of shorebirds are threatened with or actually at risk of extinction..." More>>


$7.5 Billion Surplus: Government Accounts "Show Strong Economy"

“The surplus and low levels of debt show the economy is in good shape. This allows the Government to spend more on infrastructure and make record investments in health and education,” Grant Robertson says. More>>


New OIO Application Trumps Judicial Review: OceanaGold Cleared To Buy Land For Waihi Tailings Expansion

In a surprise turnaround, the government has given OceanaGold a greenlight to buy land to expand its Waihi mine after the application was previously turned down by Land Information Minister Eugenie Sage. More>>


Christchurch Rebuild: Fletcher Sued For $7.5m Over Justice Precinct

Fletcher Building is being sued for $7.5 million by utilities contractor Electrix, one of the subcontractors on the Christchurch Justice and Emergency Services Precinct. More>>

Three New Drugs: PHARMAC Signs Bundle Deal For More Cancer Medicines

420 New Zealanders with lung cancer, breast cancer, multiple sclerosis and respiratory disease will benefit each year from a bundle deal PHARMAC has finalised with a medicine supplier. More>>