Kiwibank predicts OCR cut next week

by NZ Adviser02 Mar 2016
Kiwibank has said the Reserve Bank of New Zealand will cut interest rates on Thursday next week, according to BusinessDesk.

The lender predicts the cash rate will be cut by 25 basis points in March and June to reach a record low 2%, a change from its previous view that the OCR would hold at 2.5% for the rest of 2016. 

Kiwibank senior economist Zoe Wallis said several pieces of data produced over the past month had encouraged the change of opinion. 

“These include; significant fall in inflation expectations, waning business confidence, a lower global growth outlook and strong gains in the New Zealand dollar,” said Wallis.

“The global growth outlook has weakened at the same time as dairy prices continue to fall and the New Zealand dollar remains elevated – reducing New Zealand’s growth and inflation outlook.

“Given the changes in the domestic and global environment, we now anticipate that the RBNZ will need to further cut the OCR down to 2 percent in coming months. While there are some arguments in favour of waiting, we see 25bps rate cuts in March and June as the most reasonable response to the shifting outlook.”

Kiwibank noted that the Reserve Bank has taken great pains to emphasise the flexibility around inflation targeting in its PTA. 

“However, the body of evidence is now highlighting the significant downside risks to the RBNZ’s inflation target over the medium-term,” Wallis said. “We now believe that the downside risks to growth and inflation are significant enough to outweigh the financial stability risks.”

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