by Miriam Bell
ANZ chief economist Cameron Bagrie expects the RBNZ to cut the OCR by 25bps in June and to then follow it up with another cut in July.
Bagrie’s prediction came after ANZ’s monthly inflation gauge showed falls in the housing, miscellaneous goods, and recreation and culture groups which contributed to a 0.2% fall in the gauge.
They had seen enough across their four prongs (high NZD, dairy income squeeze, inevitability of a prudential response towards housing and continued low core inflation reads) to call the OCR lower, he said.
“Demand across the economy is still solid yet the reality is that inflation has failed to show up at the growth party. Core inflation has now been below the 2% target for 21 successive quarters. That’s enough in itself to justify OCR cuts.”
While the RBNZ has an inflation target – not a growth or housing one, Bagrie said monetary policy is more than merely monitoring demand and wage and price setting outcomes.
The RBNZ must manage the risk profile around them and the risk profile facing the economy is evolving rapidly, he continued.
“Cutting the OCR is a low delta option to manage emerging economic risks. We see little point waiting until the second half of the year to exercise this optionality.”
Late last week, ASB chief economist Nick Tuffley said it was time for OCR cuts due to changes in future inflation risks and predicted two cuts by the end of the year.
Deutsche Bank has also predicted an OCR cut in June.
Meanwhile, Westpac chief economist Dominick Stephens said he expected that the next move in the OCR will be down.
In his view, there was a possibility of 40% odds that the OCR could be cut as early as this year, but the strong economy and low inflation had left the RBNZ between a rock and a hard place.
“So, what’s the RBNZ to do? On balance, we think economic growth and the housing market will remain too strong for the RBNZ to pull the trigger. Consequently, we expect that the OCR will remain on hold through the coming year.”
However, Stephens added the risk of cuts has increased and the merest whiff of a downturn in demand will be enough to push the RBNZ over the line.
“Even though we’re not picking a change in the OCR anytime soon, we still expect a change in policy settings over the coming months. This will come in the form of tighter macro-prudential settings.”
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