Kiwibank to RBNZ: Cut OCR to 2.5%

Tuesday, 6 August 2024

Kiwibank calls the Reserve Bank's statement dovish, predicting a rate cut by November. With a softened tone and faster inflation fall projections, Kiwibank remains confident in a 2023 rate cut, which is good news for households and businesses.

Kiwibank is calling on the Reserve Bank of New Zealand Te Pūtea Matua (RBNZ) to start cutting the official cash rate (OCR) at every meeting until it’s down to 2.5%.

Chief economist Jarrod Kerr’s economic forecast released today said, “We need to get back to a neutral, no longer restrictive, setting.”

“We recommend a cut next week, followed by a cut at every meeting until the cash rate hits 2.5%.”

The OCR is currently 5.5%. The RBNZ is due to review its monetary policy on August 14.

“Neutral is around 2.75% according to the RBNZ and if anything we need a bit of stimulus,” Kerr said.

That’s why the state-owned bank is recommending a 75 basis points (bps) cut cut by November, he said.

“Going into next week’s decision, we would recommend the RBNZ board cut 25bps to 5.25%.”

“The economy needs support,” Kerr said.

Kerr points to cooling headline inflation which is down to 3.3%, almost at RBNZ’s 1-3% target.

“Looking at current market pricing, anything less than cutting in August will cause a large spike in wholesale rates,” he said.

“As always, it all comes down to inflation and the confidence in its return to 2%. The RBNZ must be more confident today.”

‘No need to wait for confirmation’

BNZ also called for an immediate rate cut today on the back of “tight monetary conditions, slumping net migration, government cutbacks, rising unemployment, reduced investment activity and weak confidence”.

The bank’s head of research Stephen Toplis said, “We strongly believe the RBNZ should be easing monetary policy as soon as possible.”

“There is no need to wait for confirmation,” Toplis said.

While the bank didn’t take as aggressive an approach as Kiwibank, Toplis called for “progressive easing cycle from the August meeting”.

BNZ’s update refers to RBNZ’s tone change in its July monetary policy review, when the committee stated it was “confident that inflation will return to within its 1-3% target range over the second half of 2024”.

Yesterday, The Post reported Westpac’s readjusted OCR forecast, now expecting a cut to 5.25% in October followed by a series of cuts in November.

“We have started to see some pressure coming off mortgage rates slowly. It normally takes about a year to 18 months of interest rate reductions to flow to the economy,” Westpac senior economist Satish Ranchhod said.

“Our longer-term forecast for the OCR is unchanged, with the OCR to fall to 4.5% at the May 2025 Monetary Policy Statement and for it to reach our current estimate of the terminal rate of 3.75% in early 2026,” Westpac chief economist Kelly Eckhold said in the forecast.