“Twenty three days is an eternity when you are living in an exponential world”
The Reserve Bank may be forced to slash the Official Cash Rate (OCR) by up to 50 basis points within the next few days, despite the fact that its next OCR announcement isn’t scheduled until 25 March.
ANZ chief economist Sharon Zollner says we can’t rule out an emergency OCR cut in response to the ‘global problem’ of the coronavirus, which has caused markets to plummet over the past few days. If this happens, she says there would be little point in cutting it by 25 basis points, and the Reserve Bank is more likely to “go harder to home.”
“Twenty three days is an eternity when you are living in an exponential world,” Zollner said.
“We now expect RBNZ to cut the OCR 50bp in March and a further 25bp in May, taking the OCR to just 0.25%.
“The COVID-19 situation is evolving very rapidly, spreading fast outside China – including, now, in the UK – and the virus is now present in New Zealand, although it appears isolated so far. A marked global slowdown is guaranteed.”
Zollner says that although New Zealand appears “better placed to weather this shock” than most countries, there is a clear risk of a significant slowdown or even a recession. ANZ is currently forecasting GDP stalls in the first half of the year, followed by a slow and steady recovery.
“Fiscal policy will need to do the heavy lifting,” Zollner said. “But lowering the OCR will ease financial pressure, facilitate a lower NZD, aid confidence at the margin and support the recovery.”
Reserve Bank spokeswoman Anne Apostol says the Monetary Policy Committee will finalise its assessment of COVID-19 developments on the day of the next OCR announcement, but any deviations from the schedule would be made public to everyone at the same time.
