Economists are united in their view that the Reserve Bank will cut the Official Cash Rate (OCR) by 0.25% later today, but several are forecasting more will be needed, and sooner, to pull the economy out of the funk.
A 25-basis-point cut down to 3% has already been priced in by the big four banks, which cut interest rates for borrowers and savers last week.
But later today, observers will be keeping a close eye on commentary and analysis from the Reserve Bank’s monetary policy committee on how fast it thinks the OCR, and therefore interest rates, could fall over the next six to nine months.
ANZ’s Sharon Zollner said: “Even assuming the decision is a given, the Reserve Bank could nonetheless move the market considerably with both its OCR forecast and its words.”
Some are expecting rates to eventually fall a further 25 basis points, down to 2.75%, or even to 2.5%. The OCR is currently 3.25% after being held steady in July.
Speaking to Breakfast this week, Infometrics principal economist Brad Olsen said a lacklustre economy in recent months had likely sealed the deal for today’s decision to cut.
The morning’s headlines in 90 seconds, including teachers walk off the job, explosion at vet clinic caught on camera, and a diamond heist doesn’t pay off. (Source: 1News)
“Everyone can see the writing on the wall. The economy has not been going particularly well in the last couple of months,” he said.
He added: “With the higher unemployment rate and everything else, it looks like there is enough reason for the Reserve Bank to be able to cut interest rates back a bit more. The question is, how much further they might signal they are willing to go.”
* Follow live coverage of the OCR announcement on 1News.co.nz from 2pm.
Finance and Mortgage Advisers Association managing director Peter White said home loan borrowers were considering whether to fix or continue with a variable rate.
“Many are electing to split their loan between the two as part fixed and part variable, and this can be a good option right now as the expectation is that rates will continue to trend downwards into 2026.”
How many more cuts and how soon?
But the question of when there might be more cuts after today, if at all, remains subject to debate. Some are pushing for the Reserve Bank to be more aggressive, arguing the central bank needs cuts to help lift the economy out of its current malaise.
Kiwibank chief economist Jarrod Kerr has led calls for what he terms a “go for growth” approach, arguing the OCR needs to fall to 2.5% – below the neutral rate of around 3%.
“A cash rate of 3% isn’t stimulatory, and it isn’t encouraging excessive behaviour or inflation. We need a stimulatory rate if we’re going to encourage businesses to take on risk – either invest or hire,” he said in a briefing note.
Economist Brad Olsen said major banks had already pre-emptively dropped interest rates as “everyone can see the writing on the wall”. (Source: Breakfast)
Meanwhile, Westpac NZ’s chief economist Kelly Eckhold still believes today’s forecasted cut will likely be the last of this cycle, though he expects the Reserve Bank to leave the door open for one more 25-basis-point reduction later in the year.
“Our forecast remains that [this] easing will most likely be the last for this cycle.”
Westpac economists said “further cuts from here will be more cautious while inflation remains high and the economic outlook unclear”.
They added: “Domestic inflation is likely to linger above historic averages due to continuing large increases in administered charges like council rates and electricity charges.”
