VIEW: ASB Expects First Rate Cut in Q4, 2024 Growth Soft

In its quarterly outlook, ASB expects growth to be close to flat over this year with inflation returning to the band by end-2024, the first rate cut should occur by the end of the year and if not in early 2025. There may be further quarterly contractions in GDP but by end-2024 it expects “to see the foundations for recovery being put into place”.

• “Before cutting, the RBNZ needs to be very confident that inflation will be firmly anchored within its 1-3% target band. We expect the RBNZ will be comfortable to start cutting the OCR in November, provided that headline inflation is comfortably in the target band and other ‘core’ measures of inflation are looking well behaved.” ASB is forecasting the OCR at 5.25% end-2024 and 3.25% Q1 2026.
• “Rental inflation (10% of the CPI basket) is reaccelerating, impacted by the strength of migration. Council rates and insurance costs are also going up at a strong pace.” Wage growth “should continue to ease”.
• “Nevertheless, headline inflation remains on track to fall below 3% over the second half of this year and settle close to 2% over 2025. It is still some time yet until the RBNZ will see clear evidence inflation is under control.”
• “The pressure of high interest rates continues to dominate spending decisions. Consumer and government spending, and capital expenditure are contracting. The soft domestic spending is containing imports, leading to a positive contribution from net exports and a narrowing of NZ’s still-large current account deficit.”