VIEW: ASB Sees Risks Rate Cuts Pushed Further Out In 2025

The weak economic outlook has impacted NZ’s fiscal position with the return to surplus delayed until FY28. ASB believes that the less contractionary policy settings will “not be greeted fondly by the RBNZ”, as it continues to battle to contain domestically-driven inflation, and risks pushing expected early 2025 rate cuts further out.

• “Gross government bond issuance over the 2024/28 period is expected to be $12bn higher than projected in the December 2023 Half Year Economic and Fiscal Update (HYEFU).”
• “Budget 2024 contained a fiscal policy pivot towards tax relief that was balanced by cutbacks in operational spending. The scale of the tax cuts was trimmed, but only modestly so. Moreover, the timing of the income tax cut package was only delayed by a month. The introduction of a tax cut package before spending cuts are instigated would not be helpful for the RBNZ which is desperately trying to rein in domestically-generated inflationary pressures.”
• “Moreover, the profile of the fiscal impulse suggests that fiscal policy was not as contractionary as the 2023 HYEFU, with the fiscal tightening occurring earlier. This will not be greeted fondly by the RBNZ. The risk is that OCR cuts we expect for early 2025 get pushed further back, undoing much of the support that the tax cuts were trying to deliver.”