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RBNZ: Further Rate Cuts In Early 2025 As Head Back To “Neutral”

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Deputy Governor Hawkesby plus Assistant Governor Silk and Chief Economist Conway have appeared at the Finance and Expenditure Committee hearing. Consistent with the updated OCR profile, Silk stated that the MPC is very confident that it will be able to cut rates again in early 2025 and Conway said that the aim is to move rates back to neutral. On Wednesday Governor Orr said that the RBNZ estimates neutral at 2.5-3.5%.

  • Growth is expected to recover in 2025 and Conway said that the forecast +0.3% q/q for Q4 this year is consistent with what the bank heard from the over 80 businesses it spoke to.
  • He also said that the RBNZ will need to look at the upward revisions to the past two years of GDP data and what that means for its assessment of the output gap. Excess capacity has been one reason why it is confident that underlying inflation will return to the 1-3% band.
  • Wage and price setting behaviour has begun to adjust to the lower inflation environment but there is a risk that it doesn’t shift enough resulting in more persistent domestically-driven inflation, which would mean less monetary easing.
  • Conway noted that the RBNZ’s forecasts have been “reasonably accurate”. He also said that the latest projections do not contain possible US tariffs as it is still very unclear what they will look like.
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Deputy Governor Hawkesby plus Assistant Governor Silk and Chief Economist Conway have appeared at the Finance and Expenditure Committee hearing. Consistent with the updated OCR profile, Silk stated that the MPC is very confident that it will be able to cut rates again in early 2025 and Conway said that the aim is to move rates back to neutral. On Wednesday Governor Orr said that the RBNZ estimates neutral at 2.5-3.5%.

  • Growth is expected to recover in 2025 and Conway said that the forecast +0.3% q/q for Q4 this year is consistent with what the bank heard from the over 80 businesses it spoke to.
  • He also said that the RBNZ will need to look at the upward revisions to the past two years of GDP data and what that means for its assessment of the output gap. Excess capacity has been one reason why it is confident that underlying inflation will return to the 1-3% band.
  • Wage and price setting behaviour has begun to adjust to the lower inflation environment but there is a risk that it doesn’t shift enough resulting in more persistent domestically-driven inflation, which would mean less monetary easing.
  • Conway noted that the RBNZ’s forecasts have been “reasonably accurate”. He also said that the latest projections do not contain possible US tariffs as it is still very unclear what they will look like.