Photo: RNZ
- Uncertainty about global trade, near term inflation lift points to caution
- Soft economic recovery backs case for further rate cuts
- Eyes on RBNZ statement and forecasts for hints on how low RBNZ will go
Stand-in Reserve Bank (RBNZ) governor Christian Hawkesby faces his first public test this week, selling the central bank's latest monetary policy statement and providing clarity and certainty on the path of interest rates.
A 25 basis point cut to the official cash rate (OCR) to 3.25 percent is taken as a given, but how much further and how fast are the questions.
ASB economist Wesley Tanuvasa said the RBNZ was flying in the fog.
"The RBNZ, and every other central bank, is performing under pronounced uncertainty. We wouldn't be surprised if the RBNZ signals an explicitly data-dependent approach moving forward, given the risks to near-term inflation and the fluid global backdrop."
He said the outlook was a mixed bag with primary exports strong, but the broader economy for households and the services sector looking soft, and inflation facing a spike from domestic sources such as food prices, as well as the impact of US tariffs on world trade and growth.
Christian Hawkesby. Photo: RNZ / Reserve Bank
Westpac chief economist Kelly Eckhold also expected a commentary about 'navigating difficult waters'.
"The Summary Record of Meeting is likely to reflect a potentially vigorous debate on the weight the MPC (monetary policy committee) should put on the uncomfortably high near-term inflation outlook versus hopes for lower inflation in 2026 and beyond."
"Some members are likely to argue for a much slower and more data dependent pace of easing going forward," Eckhold said.
Hawkesby the nightwatchman?
Kiwibank chief economist Jarrod Kerr said the statement was the chance of Hawkesby to come out from the shadow of Adrian Orr, who abruptly resigned in March, and give the economy the stimulus it needed.
"Hawkesby ... could easily deliver a 50 basis point move and signal another 50 basis points to 2.5 percent to come. That would set policy about right for a recovery.
"If, however, Hawkesby decides to play the nightwatchman, then we may just get a 25 basis point cut and little else. That's precisely what we don't need. And we'd argue it would show an RBNZ out of touch with our economic reality," Kerr said.
Kerr's urgency is not mirrored in other analysts' forecasts, and the end point for most is a cash rate perhaps at 2.75 percent by year end.
The mix of caution in the statement and accompanying economic forecasts will dictate the response from lenders on interest rates.
Whatever size cut is made, it will flow inevitably to floating rates.
The BNZ has already stolen a march on rivals with an advance 25 basis point reduction of its floating rate to 6.44 percent, and a trimming of fixed rates.
