Further OCR cut possible, economists say

The Reserve Bank has cut the already record low interest-driving official cash rate (OCR) a further 25 basis points to 1.5%, and raised the likelihood of more to come.

Before the Reserve Bank's monetary policy statement yesterday, analysts had been split about 50:50 on whether there would be a hold or cut of the OCR

The New Zealand dollar was trading at US66c before the statement, then fell to around US65.56c.

The central bank's new monetary policy committee decided a lower OCR was necessary to support the outlook for employment and inflation, consistent with its policy remit.

''Global economic growth has slowed since mid-2018, easing demand for New Zealand's goods and services.

''This lower global growth has prompted foreign central banks to ease their monetary policy stances, supporting growth prospects,'' the committee said in a statement.

However, it noted there was still uncertainty about the global economic outlook.

On Tuesday the Reserve Bank of Australia board kept its interest rate on hold at 1.5% for the 30th consecutive monthly meeting, governor Philip Lowe citing the ''spare capacity'' in the labour market as having trumped any concerns about economic growth slowing.

ASB chief economist Nick Tuffley said the cut was against a backdrop of divided market opinion on whether there would be a cut or not.

''The Reserve Bank's OCR outlook implies around a 50% probability of another OCR cut,'' he said.

The next OCR move was likely to depend on economic data and Mr Tuffley had ''pencilled in'' August, but he felt the risks were skewed to a later move.

Westpac chief economist Dominick Stephens said the cut was ''bang in line with our expectations''.

There was justification for cutting the OCR, with low inflation, a slowing domestic economy, and global risks.

''Our interpretation is that the Reserve Bank is genuinely open-minded about whether to cut the OCR again or not,'' he said.

Mr Stephens judged the probability of a follow-up OCR cut in June as low, but August as more of a live possibility.

''[However] our current forecast is that the Reserve bank will keep the OCR on hold at 1.5% until mid-2020, when it will reduce the OCR again,'' he said.

The policy committee said domestic growth slowed from the second half of 2018.

''Reduced population growth through lower net immigration, and continuing house price softness in some areas, has tempered the growth in household spending.''

Ongoing low business sentiment, tighter profit margins, and competition for resources had restrained investment, the committee said.