The Reserve Bank of New Zealand (RBNZ) is widely anticipated to deliver a substantial 50 basis-point interest rate cut on Wednesday, bringing the official cash rate down to 3.75%, according to a Reuters poll of economists. The poll also suggests that the RBNZ is likely to implement a further 75 basis points of easing throughout the remainder of the year.
Building upon the 125 basis points of cuts implemented since August of last year, the RBNZ aims to provide a boost to the New Zealand economy, which is struggling to emerge from recession and grappling with rising unemployment.
With inflation now at 2.2% for the last quarter – comfortably within the RBNZ’s target range of 1%-3% – the central bank has ample scope to cut rates at its meeting on February 19.
Governor Adrian Orr signaled a 50 bps cut this month at the RBNZ’s November meeting, and the consensus among economists suggests there has been little development to dissuade the central bank from following through on that indication.
Thirty-two of 33 economists polled by Reuters between February 10-13 expect the central bank to cut the official cash rate for the fourth consecutive meeting next week, and by 50 bps to 3.75%. One economist projected a smaller 25 bps reduction.
“The RBNZ gave a pretty clear signal last year when it was announcing the November monetary policy statement. We think enough has happened to keep the central bank on track for that 50 basis-point cut,” said Nick Tuffley, chief economist at ASB Bank.
All major banks in New Zealand – ASB, ANZ, BNZ, Kiwibank, and Westpac – are anticipating a 50 bps cut on Wednesday.
A clear majority of economists, 20 of 29, expect another half percentage-point cut in April. Median forecasts predict an additional 25 bps cut in the third quarter, bringing the interest rate down to 3.00% by the end of September.
Of those providing a year-end forecast, 18 of 27 respondents expect the policy rate to be at 3.00% or lower. Seven projected rates at 3.25%, and two said 3.50%.
This would amount to a total of 250 bps’ worth of rate cuts in 17 months, exceeding the anticipated easing by the U.S. Federal Reserve.
According to a separate Reuters poll conducted in January, the New Zealand economy is projected to grow 1.2% this year and 2.6% in 2026. Inflation is forecast to average 2.1% this year and 2.0% next.
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