Westpac says New Zealand's central bank will cut rates next month

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  • The RBNZ adopted an explicit easing bias in March, implying it may cut official interest rates again.
  • Westpac Bank expects it will act upon that easing bias in next month, predicting a 25 basis point reduction to the overnight cash rate (OCR).
  • Westpac sees another follow-up cut arriving in May next year, leaving the OCR at a new record-low of 1.25%. That forecast is in line with current market pricing.

The Reserve Bank of New Zealand (RBNZ) adopted an explicit easing bias late last month, implying that it may cut official interest rates.

“Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next overnight cash rate (OCR) move is down,” the RBNZ said in its March policy statement.

Westpac Bank believes the RBNZ will act upon that easing bias, and sooner than many think.

It says the RBNZ is likely to cut its OCR by 25 basis points next month, leaving it a new record-low.

“We expect the RBNZ will cut the OCR to 1.50% in May 2019,” said Dominick Stephens, Economist at Westpac.

“There is a risk of a follow-up cut, but we think the RBNZ is more likely to hold off for the remainder of 2019. We have long been concerned about the economy slowing in the early 2020s. We now expect the RBNZ to react to that by cutting the OCR again in May 2020, to a new low of 1.25%.”

So two cuts over the next 13 months, similar to current financial market pricing.

The RBNZ will announce its next monetary policy decision on May 8.

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