The Reserve Bank has today cut the official cash rate (OCR) by 50 basis points to 4.75%.

The Monetary Policy Committee said economic activity in New Zealand was subdued, in part due to restrictive monetary policy. “Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity.”

The Committee said that annual consumer price inflation was within its 1 to 3 per cent inflation target range and converging on the 2% midpoint.

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STORY CONTINUES 

The RBNZ was tight-lipped about any future moves from here. The Committee confirmed that future changes to the OCR “would depend on its evolving assessment of the economy”.

Committee members agreed that an OCR of 4.75% was still restrictive and left monetary policy well-placed to deal with any near-term surprises.

In the minutes following the release, the New Zealand dollar fell to US61.07c from US61.30c beforehand.

EARLIER

With all the major bank economists picking a 50 basis point cut to the Official Cash Rate today at 2pm, expectations are running high that the Reserve Bank will deliver some significant relief for struggling business borrowers and mortgage holders.

However, although economists were unanimous in their 50bps picks over a cut of 25bps, they also stressed that this would still be a line-ball call for Governor Adrian Orr and the Monetary Policy Committee.

“We discussed flipping a coin,” says ANZ chief economist Sharon Zollner.

“It’s going to be a close-run thing, but now that most economists are calling it and the market is pretty much fully pricing it, one has to conclude that on balance the likeliest scenario is that the RBNZ will just take what’s on the table and cut the OCR 50bps to 4.75% next week,” she said.

ASB chief economist Nick Tuffley was more emphatic in his expectation of a 50bps cut this week but conceded it was not a done deal.

“It requires the RBNZ to heavily weight the NZIER’s Quarterly Survey of Business Opinion (QSBO) results,” he said. “Evidence of the need to step up the pace of cuts is likely to be stronger by November after inflation and labour market data are out.”

But ASB economists still shifted their call to 50bps after getting increasingly concerned “by just how tight monetary conditions are, and how long they would remain restrictive if the RBNZ took a measured approach to easing”.

“Inflation pressures look set to shrink very soon. The QSBO suggested that the deterioration of the labour market has picked up steam and that pricing pressures have weakened considerably. It is a warning signal that inflation risks undershooting the 2% mid-point of the inflation target band,” Tuffley said.

In contrast, the risk of high inflation proving to be sticky was much diminished, he said.

ASB expects the OCR will be down to 4% by February 2025 and will reach a terminal rate of 3.25% from around mid-2025.

Today’s review is different to the full Monetary Policy Statement we got in August. It means we’ll just get a one-page release with no press conference and no fresh forecasts. But you can still bet that every word of the release will be pored over for clues to the outlook.

BNZ head of research Stephen Toplis also described the decision as a “line-ball call” but opted for 50bps.

“There is a growing body of evidence that says annual inflation could soon fall below the 2% midpoint of the Reserve Bank’s target band,” Toplis said.

BNZ is forecasting it to be 2% by March 2025, falling to 1.7% by December 2025.

“The balance of risk is increasingly to the downside,” Toplis said.

Westpac chief economist Kelly Eckhold (also picking 50bps) said the challenge for the RBNZ would now be to maintain firmer control “on the market’s tendency to extrapolate OCR cutting expectations”.

“Moving the OCR closer to neutral will help with that goal. But we also hope the RBNZ will provide a clearer set of parameters on how they would expect to operate policy in 2025,” he said.

Kiwibank economists noted market traders and economists had now all positioned for “chunky” 50bps rate cuts.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up for his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here