ASB: OCR will fall to 0.5%

Weak business and consumer confidence will see the Reserve Bank slash the Official Cash Rate to 0.5% by February, according to economists at ASB Bank.

Monday, October 7th 2019, 2:14PM

The bank has revised its latest prediction for the OCR in a new report, predicting a 25 basis point cut in November and a further one in February 2020. 

The major lender expects the central bank to take action amid flagging economic growth, weak business confidence data and a lack of impact from cuts so far.

ASB economists, including Nick Tuffley, Jane Turner and Mark Smith, say the "NZ economy risks losing even more momentum than it already has", and say there is an outside chance the RBNZ could turn to another 50 basis point cut in November.

A weakening global outlook and muted inflation will further convince the central bank of the need for further cuts, the report says. 

"To be clear, our view remains that the trough in the OCR will be 0.50% this cycle (or slightly below it). Having the luxury of a freely floating exchange rate and scope to loosen fiscal settings, leaves the NZ economy reasonably well placed," the team of economists said. 

The bank believes the OCR floor, the point at which reductions become ineffective, could be as low as -0.75% to -0.25%.

 

Tags: ASB OCR OCR forecasts

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