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RBNZ: 25bp Rate Cuts Expected In April & May If Economy Develops As Expected

RBNZ
Central Bank NewsRBNZAPACNew ZealandBulletMarketsFixed Income BulletsForeign Exchange Bullets

Governor Orr stated that the expected slowing in underlying inflation, which is still above the top of the band, will allow the RBNZ to ease further and it expects 25bp at both the April and May meetings, assuming the economy develops as projected. The MPC believes that it is in the best possible position to respond to shocks with the NZD close to fair value, rates to neutral and inflation to the target mid-point.

  • The MPC is not in a hurry to bring rates to around 3% as there are still some domestic inflation pressures, but they should dissipate.
  • It remains very unclear what shocks are ahead and so the RBNZ’s forecasts don’t reflect the current significant uncertainties. There are not just geopolitical risks but also that it could take longer for quarterly growth to become positive and how the recovery will look in the medium-term.
  • Chief economist Conroy noted that while the OCR path was revised lower in 2025 this month it was still within the confidence intervals around the November profile, but with more data the RBNZ is more confident. He also stated that there is significant uncertainty around the estimate of the neutral rate.
  • There was a lot of discussion around the significant revisions to the GDP data which resulted in larger capacity constraints before early 2024 but then more excess capacity later last year. Orr noted that this made sense as previously GDP wasn’t consistent with persistent domestic inflation.
  • Due to lags and large revisions associated with GDP the RBNZ has been taking signals from higher frequency data, such as PMIs and card spending, which is what prompted it to begin easing in August. Currently, they are indicating that growth in Q4 2024 and Q1 2025 should be positive. 
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Governor Orr stated that the expected slowing in underlying inflation, which is still above the top of the band, will allow the RBNZ to ease further and it expects 25bp at both the April and May meetings, assuming the economy develops as projected. The MPC believes that it is in the best possible position to respond to shocks with the NZD close to fair value, rates to neutral and inflation to the target mid-point.

  • The MPC is not in a hurry to bring rates to around 3% as there are still some domestic inflation pressures, but they should dissipate.
  • It remains very unclear what shocks are ahead and so the RBNZ’s forecasts don’t reflect the current significant uncertainties. There are not just geopolitical risks but also that it could take longer for quarterly growth to become positive and how the recovery will look in the medium-term.
  • Chief economist Conroy noted that while the OCR path was revised lower in 2025 this month it was still within the confidence intervals around the November profile, but with more data the RBNZ is more confident. He also stated that there is significant uncertainty around the estimate of the neutral rate.
  • There was a lot of discussion around the significant revisions to the GDP data which resulted in larger capacity constraints before early 2024 but then more excess capacity later last year. Orr noted that this made sense as previously GDP wasn’t consistent with persistent domestic inflation.
  • Due to lags and large revisions associated with GDP the RBNZ has been taking signals from higher frequency data, such as PMIs and card spending, which is what prompted it to begin easing in August. Currently, they are indicating that growth in Q4 2024 and Q1 2025 should be positive.