This comes ahead of tomorrow’s almost certain Cash Rate cut
Kiwibank economists say an Official Cash Rate (OCR) cut to 1.25% tomorrow is “almost a foregone conclusion” and now expect that the rate will be further cut to 1%, followed by a terminal cash rate of 0.75%.
Chief economist Jarrod Kerr and senior economist Jeremy Couchman say that the need for the Reserve Bank to dip below 1% will be driven by global uncertainties, the Reserve Bank of Australia’s rate cut drive, and weakened indicators of domestic growth.
They now give a 60-70% probability of the OCR falling to 0.75%.
“The RBNZ are set to cut the cash rate to 1.25% on Wednesday,” Kerr and Couchman said. “And given heightened global uncertainties and a deteriorating outlook domestically, cuts to just 0.75% are likely.
Business confidence remains in the doldrums and is impacting growth. What we need is a significant lift in fiscal stimulus. What we’re getting is a significant cut in monetary policy.”
The economists also expressed concern around the Reserve Bank’s proposed new capital requirements, which have already faced vehement opposition from the banks themselves.
“What we worry about is the potential restriction in lending growth as the banks prepare to load more capital,” they stated. “A likely outcome is a segregation in pricing and availability of credit to households and businesses.
The RBNZ can offset any increase in lending rates, with a lower cash rate. But the RBNZ may have to get creative to offset any rationing in credit.”
