Cut expected later in year

Craig Ebert.
Craig Ebert.
The Reserve Bank is likely to slash the official cash rate later this year, although most economists are moving away from a cut this month, now pointing to September for the first reduction and December for the second.

Across the Tasman, a Reserve Bank of Australia rate cut today looks unlikely.

Market pricing for a June rate cut by the RBA remained at just 4% last week.

All 12 economists surveyed by AAP expected the cash rate to remain steady today, with nine of them tipping no move this year.

JP Morgan economist Stephen Walters said it was almost certain the RBA would keep rates steady on 2%, given the 0.25% cash rate cut on May 5.

Bank of New Zealand senior economist Craig Ebert said New Zealand fixed-interest markets were pricing in a 56% chance the New Zealand Reserve Bank would cut its cash rate by 0.25% to 3.25% on June 11.

Market pricing intimated a cut was a done deal by July. Almost two rate cuts were priced in by the end of the year.

The BNZ view was slightly different.

The BNZ believed economic growth had peaked, which would drive an easing in monetary conditions.

''We have assumed this easing comes via the New Zealand dollar, obviating the need for interest rates to fall.

''But with the multiple risks that exist, we wouldn't bet against end year pricing with any conviction. Nevertheless, we believe the case for an easing in June or July of this year is very low.''

Reserve Bank governor Graeme Wheeler would want to be remembered for his transparency, his consistency and for being methodical in his decision-making, Mr Ebert said.

With that in mind, the BNZ had always taken the view the governor and his deputies should be taken at face value.

Accordingly, the most important point of reference economists had was the April OCR review, as it was an acknowledgement the central bank had moved to an easing bias.

Given any chance of tightening, any time in the foreseeable future, had been removed, it made sense markets were pricing in the chance of a rate reduction.

But, as always, timing was everything, he said.

Add a Comment