RBNZ to cut rates by half point to 4.75% on Oct 9

Reuters

RBNZ to cut rates by half point to 4.75% on Oct 9

Oct 3, 2024 at 8:05 pm GMT

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reuters://realtime/verb=Open/url=cpurl%3A%2F%2Fapps.cp.%2FApps%2Fcb-polls%3FRIC%3DNZINTR%253DECI poll data

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By Devayani Sathyan

BENGALURU, Oct 4 (Reuters) -New Zealand's central bank will cut its key interest rate by 50 basis points to 4.75% on Wednesday, according to a majority of economists in a Reuters poll who were split on where rates would be at year-end.

The Reserve Bank of New Zealand (RBNZ) in August cut rates, which had been at a 15-year high for over a year, leaving many analysts surprised but in line with market expectations.

Soon after the August meeting, central bank chief Adrian Orr raised the distinct prospect of two more rate cuts by Christmas as inflation was comfortably nearing its 1-3% target range. Weak economic growth and rising unemployment would support the central bank's decision to ease policy further.

Interest rate futures are pricing in a roughly 97% chance of a 50 basis points cut on Oct. 9 and over 90 basis points of cuts by the end of this year. 0#RBNZWATCH

Around 60% of respondents, 17 of 28, in a Sept. 30-Oct. 3 survey expected the RBNZ to cut its official cash rate NZINTR=ECI by 50 basis points to 4.75% next week. The remaining 11 predicted a 25 basis point cut.

A trim to 5.00% next week was the median forecast in the post-August meeting poll.

"We can see risks around cutting 50, but also risks around cutting 25, and we think they'll have a pretty vigorous discussion about what the right thing to do is. But at the end of the day, when you've got 50 points pretty much fully priced and universally expected, that is the path of least resistance," said Sharon Zollner, chief economist at ANZ.

"In so far as the OCR is still at 5.25% and the Reserve Bank's estimate of neutral is a lot lower than that then they probably think a 50-point cut can be justified in that regard. If the job is done, why not take your foot off the brake?"

All major local banks - ASB, ANZ, BNZ, Kiwibank, and Westpac - saw a 50 basis points cut next week and again in November.

However, economists surveyed were split on where rates would be after November's meeting. While 13 saw 4.25% eight predicted 4.75%. Five expected rates at 4.50% and two at 5.00%.

Median forecasts showed a total 100 basis points of cuts next year, taking rates to 3.50% by end-2025.

"We have had two years of recessions and that is starting to show up in the labour market. So the central bank now has work to do the other way...Inflation is not a problem, but the risk of undershooting and having a hard landing is becoming a greater risk," said Jarrod Kerr, chief economist at Kiwibank.

"Taking it from 5.50% to below 4% would provide that necessary relief for Kiwi businesses and households. I think they need to get moving and get moving quickly. It takes so long for monetary policy to see through."

Economists expected inflation to fall to 2.2% this quarter and average 3.1% this year and 2.1% in 2025.

New Zealand's economy contracted in the second quarter and was predicted to have done so by 0.1% last quarter, indicating a technical recession. But analysts expect it to grow 0.2% this year and 1.9% in 2025.

(Other stories from the October Reuters global economic poll)

Reporting by Devayani Sathyan; Polling by Anant Chandak and Susobhan Sarkar; Editing by Toby Chopra

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