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RBNZ: Possibility Easing Pace Could Be Increased Or Reduced

RBNZ
Central Bank NewsRBNZAPACNew ZealandBulletMarketsFixed Income BulletsForeign Exchange Bullets

The RBNZ decision is announced today and is widely expected, including by the market, to cut rates 50bp to 4.25% (see MNI RBNZ Preview). The MPC’s discussion could be around easing 25bp, 50bp or 75bp. The economy has developed broadly in line with its expectations. With policy still restrictive, inflation probably sustainably within the 1-3% band and persistent excess capacity, there seems no reason to reduce or increase the pace of easing in November.

  • A 25bp cut would be hawkish but it’s a possibility. October’s discussion was between 25bp or 50bp of easing. The economy has developed broadly as the RBNZ expected in August when the Q4 2024 OCR forecast was 4.9%. Rates are below that and so the MPC may decide to slowdown. Also, some monthly data are stabilising.
  • Another reason for 25bp would be mixed Q4 inflation expectations. Some household measures were unchanged and the mean 2-year ahead rose 0.6pp to 3.7%.
  • We don’t think that the RBNZ will yet be factoring in the inflationary impact from US President-elect’s proposed trade and fiscal policies, apart from the weakening of the kiwi already seen since the election. It is unlikely to react to what might happen.
  • 75bp would signal “panic”, especially as it is above market pricing. Such a move could be driven by the fact that the next meeting is almost three months out and that rates are still well above neutral. This could add to the urgency to ease if the economic outlook is downgraded.
  • The RBNZ highlighted higher frequency indicators and the PSI/PMI remain weak. BNZ estimates they are consistent with growth below -1%.
  • An OCR forecast implying 25bp rate cuts per quarter in 2025 reaching the current terminal of 3% would be more hawkish, but dovish if the trough is revised materially below.
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The RBNZ decision is announced today and is widely expected, including by the market, to cut rates 50bp to 4.25% (see MNI RBNZ Preview). The MPC’s discussion could be around easing 25bp, 50bp or 75bp. The economy has developed broadly in line with its expectations. With policy still restrictive, inflation probably sustainably within the 1-3% band and persistent excess capacity, there seems no reason to reduce or increase the pace of easing in November.

  • A 25bp cut would be hawkish but it’s a possibility. October’s discussion was between 25bp or 50bp of easing. The economy has developed broadly as the RBNZ expected in August when the Q4 2024 OCR forecast was 4.9%. Rates are below that and so the MPC may decide to slowdown. Also, some monthly data are stabilising.
  • Another reason for 25bp would be mixed Q4 inflation expectations. Some household measures were unchanged and the mean 2-year ahead rose 0.6pp to 3.7%.
  • We don’t think that the RBNZ will yet be factoring in the inflationary impact from US President-elect’s proposed trade and fiscal policies, apart from the weakening of the kiwi already seen since the election. It is unlikely to react to what might happen.
  • 75bp would signal “panic”, especially as it is above market pricing. Such a move could be driven by the fact that the next meeting is almost three months out and that rates are still well above neutral. This could add to the urgency to ease if the economic outlook is downgraded.
  • The RBNZ highlighted higher frequency indicators and the PSI/PMI remain weak. BNZ estimates they are consistent with growth below -1%.
  • An OCR forecast implying 25bp rate cuts per quarter in 2025 reaching the current terminal of 3% would be more hawkish, but dovish if the trough is revised materially below.