While markets have priced in a 50bp move lower to 4.75%, some former RBNZ economists have told MNI they believe the Monetary Policy Committee could wait until it publishes an updated monetary policy statement before increasing the tempo of cuts. Others noted recent data suggests the Bank will act swiftly to ensure it remains ahead of the curve. (See MNI: RBNZ To Consider Strong Easing Tempo - Former Econs)
Former staffers and the market agree the economy is slowing and inflation rapidly returning to within the Bank’s 1-3% target range.
EASING PACE
While a 50bp move lower would run against the Reserve's August forecasts, Chief Economist Paul Conway told MNI following the Bank’s last decision, when it cut the OCR by 25bp after discussing a 50bp reduction, that the RBNZ would accelerate easing if needed. (See MNI INTERVIEW: RBNZ To Accelerate Cuts If Needed-Conway)
Another factor in favour of a 50bp cut next week is the RBNZ’s meeting schedule. The MPC only has one further meeting on Nov 27 before a lengthy break over summer, with its first 2025 decision not scheduled until Feb 19. Proponents of strong action sooner believe the Bank will risk falling behind the curve if it does not cut by 50bp next week.
CHANGED DATA
The New Zealand economy grew 0.2% q/q in Q2, better than market and Reserve expectations, but still sluggish compared to historical averages. (See chart)
This week’s Quarterly Survey of Business Opinion drew a more rapidly softening picture of the economy, with a drop in trading activity and a rise in staff reductions over hiring, suggesting Q3 growth will fall further.
While Stats NZ does not produce a monthly CPI series, the RBNZ has an inhouse gauge, which it does not release publicly, derived from selected price indices which have shown a clear downward trend over August and July, indicating Q3 CPI should meet the RBNZ's 2.3% y/y forecast. The survey's results however suggested Q3 CPI could print lower than forecast. (See chart)
