NEW Zealand’s central bank may this week push back against investor bets that interest-rate cuts are coming, even though the economy has slumped into a double-dip recession.
The Reserve Bank of New Zealand (RBNZ) will keep the Official Cash Rate (OCR) at 5.5 per cent for a sixth straight meeting on Wednesday (Apr 10) in Wellington, according to all 15 economists in a Bloomberg News survey. They expect policymakers to stress the need for rates to stay restrictive for a prolonged period to tame inflation.
“Markets have taken a more aggressive view on the timing and extent of OCR cuts. Those expectations will be disappointed this time around,” said Kelly Eckhold, chief New Zealand economist at Westpac Banking in Auckland. “There is little to support the idea that interest rates can be cut much earlier than the RBNZ previously assumed.”
The central bank in February projected it will not start easing policy until 2025, citing concerns that record immigration will add to demand. Since then, data showed the economy slid back into recession in the second half of 2023, prompting investors to fully price in a pivot to rate cuts in the third quarter of this year.
The RBNZ will release on Wednesday’s decision at 2 pm local time. It is a policy review rather than a full Monetary Policy Statement, so the bank will not publish fresh economic forecasts or hold a news conference with governor Adrian Orr.
Most economists expect the first rate cut will occur in the fourth quarter, although some see one as early as August. Westpac and ANZ Bank do not see cuts starting until early 2025.
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By contrast, investors are pricing two cuts and a 70 per cent chance of a third before the end of this year, swaps data show.
Central banks globally are focused on how quickly inflation is slowing and when they can begin easing. The Swiss National Bank unveiled a surprise rate cut last month – the first by a Group-of-10 central bank – while the Reserve Bank of Australia has indicated its next move is down. The Federal Reserve continues to signal as many as three cuts this year, although the start of any easing remains unclear.
A Fed cut this year might allow the RBNZ to ease earlier than it projects by pushing up the New Zealand dollar and suppressing imported inflation, chief economist Paul Conway said last month.
For now, inflation at 4.7 per cent remains well above the RBNZ’s 1 to 3 per cent target band and latest price indicators have been less benign than the RBNZ would like, said Stephen Toplis, head of research at Bank of New Zealand (BNZ) in Wellington.
While there are also signs of “increasing economic distress”, suggesting a weaker growth outlook, “we do not believe there is sufficient evidence at this juncture for the bank to signal an earlier move” on rates, Toplis said. BNZ expects the first cut will occur in November. BLOOMBERG
