RBNZ to cut again later this year

Back in June the RBNZ cut the OCR, and signalled that it expected one follow-up cut at an unspecified date later in the year. Shortly afterwards, New Zealand was subject to a shocking run of data. 

Global dairy prices plunged, GDP growth turned out much weaker than expected, and core inflation fell. It became apparent that the Canterbury rebuild had levelled off early, and business and consumer confidence fell.

"All and sundry reassessed their interest rate, exchange rate, and economic growth forecasts. An immediate OCR cut was forecasted in July, and follow-up cuts that would rapidly take the OCR to an all-time low of 2.0%", says Westpac.

At the July OCR Review the RBNZ did indeed cut the OCR 25 basis points, and bluntly stated "At this point, some further easing seems likely." This was a clear signal that a September OCR cut would follow, and that the OCR would fall below 3.0%.

But in a speech shortly after the July OCR Review, the RBNZ tried to rein in expectations of how far the OCR would fall. That speech created an impression that 2.5% is a "line in the sand", below which the RBNZ will not take the OCR except in recession. Financial markets have steadfastly refused to price any material risk of the OCR falling below 2.5%, despite turmoil on global markets, and this has lent support to the exchange rate