Photo: RNZ
- RBNZ monetary policy statement Wednesday (2pm)
- Economists' consensus that Official Cash Rate (OCR) will be cut by 25 basis points to 3.00 percent
- Economy seen to have hit the wall in June quarter, unemployment higher but inflation also rising
- RBNZ seen leaving the door open to further cuts, watching data and US tariff effects
- Opinion divided how many - if any - cuts to come
The Reserve Bank will resume cutting interest rates this week, but whether there will be any more remains an open question.
Economists and financial markets overwhelmingly expect the central bank's monetary policy committee will deliver a 25 basis point cut, taking the official rate to 3.0 percent, after pausing in July.
The RBNZ aggressively cut the OCR by 225 basis points from 5.5 percent to the current 3.25 percent from August last year.
The bank opted to sit on the sidelines in July in a split decision, with one member of the monetary policy committee (MPC) wanting a cut. But it was also made clear that a rate cut was likely this month.
The mid-year economic slowdown includes a weaker labour market and the prospect of a further rise in unemployment, as well as the high level of uncertainty about the effect of US trade policies and tariffs.
"We don't expect a split vote, but we do expect to see evidence of debate among MPC members around the weight placed on high near-term inflation and rising expectations versus lower medium-term forecasts," Westpac's Kerry Eckhold said.
He has been inclined to call an end to the rate cuts after this week, but that hangs in the balance.
Safe and steady
Kiwibank economists have been among the loudest in calling for prompt and decisive RBNZ action.
"The weakness in the economy demands stimulus. With all the risks offshore, and the pain still felt onshore, there's a good argument to be made for taking policy into stimulatory territory asap," they said in a commentary, adding the cash rate should be cut to 2.5 percent.
The RBNZ has maintained that core inflation has been falling towards its 2 percent target point, despite continued pressures on food and other services.
For ANZ chief economist Sharon Zollner, the words in the RBNZ statement and the indicated track of the OCR will be the key issues to watch, with the expectation the central bank will play down the middle.
"While the country is certainly in a funk, it's not a given that the RBNZ is going to be revising their OCR track a whole heap lower. It will ultimately come down to what message the committee wants to send."
She said a statement with a similar tone to May would not be a surprise, with a nod towards the prospect of a further rate cut, but no promises on timing.
Financial market pricing sees one further cut to 2.75 percent early next year.
Retail banks have trimmed their short term fixed mortgage rates ahead of Wednesday's decision.
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