1 Comment 1 Commentby Jenny Ruth
The central bank is expecting inflation to abate slightly faster but that unemployment will be slightly higher through next year than it had been expecting in August.
The new forecasts have the OCR averaging 2.4% in the current quarter and easing to 2.2% for the March, June and September quarters of next year but then rising to 2.3% in the December quarter of next year.
Previously, RBNZ had been expecting a 2.5% OCR in the March quarter of 2026 and at 2.6% through the rest of that year.
Some economists have been predicting that a further OCR cut may be required but RBNZ appears to be ruling that out.
The new forecasts have the quarterly inflation rate for the December quarter coming in at 0.2%, below the 0.3% it was forecasting in August, and that the annual rate will drop to 2.1% in the September quarter next year, down from its previous 2.2% forecast.
RBNZ says that the easing of inflation to about 2% by mid-2026 reflects the spare capacity in the economy.
RBNZ thinks the September quarter economic growth was slightly higher at 0.4% than the 0.3% it had been expecting in August, but that the quarterly growth in the December quarter will be slightly softer at 0.7% compared with its earlier 0.8% forecast.
“Lower interest rates are encouraging household spending and the labour market is stabilising,” the central bank says.
The RBNZ has cut the OCR from 5.5% since August 2024.
The unemployment rate is likely to remain at 5.3% through the December and March quarters before easing to 5.2% in the June quarter next year.
In August, it had expected the unemployment rate in the December and March quarters would be 5.2%, easing to 5.1% by the June quarter of next year.
The monetary policy committee says the risks to the inflation outlook are balanced. Greater caution from households and businesses could slow the pace of the recovery, but equally the recovery could be faster than expected if domestic demand proves more responsive to lower interest rates.
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"The established tendency of our central bank is to tighten too late then tighten too much, and after that ease too late then ease too much. They probably place excessive reliance on old economic models of the economy which no longer work and being public servants will psychologically oscillate around being sticks in the mud and fearful of change and then wanting to exercise “an abundance of caution.” What does that mean? The chances are good that they are again injecting extra stimulus into our economy when it does not need it given the factors already set to strengthen in impact through 2026 and 2027. That will set the scene for some eventually greater than expected tightening of monetary policy"