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The Reserve Bank of New Zealand (RBNZ) is expected to cut the Overnight Cash Rate (OCR) to 0.75 percent at its monetary policy meeting next Wednesday, and leave the door ajar to further cuts while stopping short of overtly signalling them, according to the latest report from ANZ Research.
A downgrade to the RBNZ’s near-term growth forecasts will be the catalyst, despite offsetting developments.
With the currency in mind the RBNZ will not close the door on further cuts, but it is likely to stress that it will assess how earlier stimulus is transmitting though the broader economy before moving again.
The central bank is further expected to maintain an optimistic outlook for business investment further out, but the near-term outlook clearly needs a prune. It’s worth bearing in mind that the RBNZ still requires the economy to run relatively hot to get inflation up sustainably to the midpoint of the inflation target, the report added.
In the RBNZ credit conditions survey last week banks reported that they are tightening credit availability for the corporate, agricultural and commercial property sector due to regulation, balance sheet constraints and risk perceptions and tolerance. This data may not enter the RBNZ’s models, but it certainly deserves a place in their deliberations.
The housing market is showing signs of life as lower mortgage rates and aggressive competition work their magic. A wide range of outcomes for the housing market is plausible from here as lower interest rates go head to head with tax and other policy changes – and uncertain net migration to boot.
It’s hard to know what the RBNZ will predict. It has the opportunity to coordinate the OCR and LVR decisions this month, with a bit of give and take.
"We continue to forecast two more 25bp cuts to follow (in February and May), with the final cut being a placeholder for acknowledging the tightening of monetary conditions associated with requiring banks to hold more capital," ANZ Research further commented in the report.
