RBNZ Likely to Start Cutting Official Cash Rate in August: ANZ Economists

Date Published: 19 January 2024

Key Facts

• ANZ economists, led by chief economist Sharon Zollner, predict that the Reserve Bank will begin slashing the Official Cash Rate (OCR) in August.
• Zollner anticipates a sequence of 25 basis point reductions over the next 12 months, which will bring the OCR down to 3.5% from its current level of 5.5%.
• In line with ANZ’s forecasts, Zollner believes inflation will return within the 1% to 3% target range by the third quarter, and unemployment may exceed 5%.
• She also lays out the possibility of an early rate cut or a rate increase, depending on economic conditions such as CPI details and inflation rate.
• Zollner points out that the next six months will likely see a swift disinflation in locally driven Consumers Price Index (CPI) components, due to a strong supply recovery, prior weak GDP outturns, and a worsening labour market.
• She does not anticipate much advance warning from the RBNZ before policy easing.

Article Summary

Economists from ANZ Bank have released a prediction, suggesting that the Reserve Bank of New Zealand (RBNZ) may begin a series of rate cuts to the Official Cash Rate (OCR) this August. The anticipated deductions, starting at 25 basis points, will drop the cash rate to 3.5% from the existing 5.5% over the course of a year, according to ANZ’s chief economist, Sharon Zollner. Sahe threw light on the possibility of either an earlier cut or a hike, influenced by the CPI specifics or persistent inflation.

Zollner posits that inflation will circle back to the targeted 1-3% zone by the September quarter while she expects the unemployment rate to cross the 5% threshold and could continue to climb. Additionally, she outlined the causes for a fast disinflation for domestically affected CPI components in the forthcoming months.

She also negated expectations of RBNZ giving a considerable heads-up before policy easing. According to her, the financial market would find it challenging to retract from a prematurely relaxed financial condition; hence a “deny-deny-deny-cut” approach by the RBNZ would be the most practical strategy.

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