The three GlobalDairyTrade auctions between now and the July official cash rate review by the Reserve Bank will play a major part in deciding when the next cut in the OCR will happen, economists say.
Reserve Bank governor Graeme Wheeler yesterday cut the OCR by 0.25% to 3.25%, with the market expecting another cut in September.
ASB senior economist Michael Gordon said the ASB preferred to call a September cut because of the June quarter consumer price index (CPI) inflation figures, which will be published a week before the July OCR review.
''We're now forecasting a 0.8% rise in prices for the quarter as a result of the lower New Zealand dollar and the rebound in fuel prices.
"By comparison, the Reserve Bank's forecast of 0.4% looks on the low side - even lower, in fact, than it was three months ago.
"A CPI print in line with our forecast would cause the Reserve Bank sufficient pause for thought to delay until September.''
However, if world dairy prices continued to soften at the three GDT auctions between now and July, the ASB would have no qualms about bringing forward its rate cut call to July, Mr Gordon said.
And, in that scenario, the ASB would probably forecast the OCR falling below 3%.
A stabilisation or rise in dairy prices would give some comfort, although realistically there would still be a farm-gate milk price with a ''$5 handle'' for the current season, well below the average of recent years, he said.
The other key piece of data to watch would be the exchange rate, as the New Zealand currency was under considerable downward pressure at present, he said.
''If it falls further, as we expect, the case for a July OCR cut will diminish. If the dollar stabilises at current levels, the case for a July cut would be bolstered.''
