By Devayani Sathyan
BENGALURU (Reuters) -New Zealand’s central bank will likely cut its key interest rate twice more this year, taking it to 2.50%, according to a majority of economists polled by Reuters following the latest policy meeting, where it unexpectedly flagged more reductions.
While the Reserve Bank of New Zealand’s (RBNZ) August 20 reduction was in line with expectations from economists and financial markets, a surprise lower path for the official cash rate (OCR) and two votes for a larger 50-basis-point cut prompted economists to revise their outlook.
Since August 2024, the RBNZ has cut rates by 250 bps to support a shaky economy. However, with the central bank assuming the economy stalled in the second quarter and inflation remaining within the 1%-3% target range, the door is open for further cuts.
Over 75% of economists polled, 13 of 17, predicted 50 bps of easing this year, compared with the pre-meeting survey, when economists were split between no further cuts and only one more 25-bp move. Four economists saw a smaller move to 2.75%.
“The RBNZ has come around to our view that the economy needs more support, a little bit sooner than we had expected. So we now anticipate the two cuts we were forecasting will come by the end of the year. That’s good news for the economy,” said Sharon Zollner, chief economist, New Zealand at ANZ.
Nearly 90% of the economists, 15 of 17, expect a 25-bp reduction at the next meeting on October 8. Two expected no change.
The country’s largest banks, ANZ, ASB, BNZ, Kiwibank and Westpac, all forecast a cumulative 50 bps of easing by this year-end. Of those, only ANZ and Kiwibank previously expected the cash rate to fall to 2.50%, but they expected those reductions to come in 2026.
Median forecasts showed rates on hold at 2.50% through 2026.
“They’ve finally moved in the right direction. We’ve been calling for a 2.50% cash rate for quite some time. There’s a lot of pain out there in the real world, and it just required a monetary policy setting that was stimulatory,” said Jarrod Kerr, chief economist at Kiwibank.
(Other stories from the August Reuters global economic poll)
(Reporting by Devayani Sathyan; Polling by Veronica Khongwir; Editing by Ross Finley and Rashmi Aich)
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