Key Facts

  • ANZ economists have revised their Official Cash Rate (OCR) forecast, anticipating a less likely rise to over 5.50% at the upcoming Reserve Bank (RBNZ) meeting in February.
  • This follows less robust figures than anticipated for September’s inflation and labour market data.
  • Chief Economist, Sharon Zollner maintains that there’s still a possibility that the RBNZ will need to boost the OCR beyond 5.5% to realign inflation. However, she notes this chance is now under 50%.
  • The strengthening of the New Zealand dollar—reflecting a recovery in exchange rates—also reduces the likelihood of a rate hike.
  • UBS economist Nic Guesnon predicts that the RBNZ will cut interest rates next year, despite inflation still being over the target. He also anticipates a sharper rise in unemployment.
  • Headline inflation is expected to fall to 2.2% by the end of 2024 with unemployment peaking at 5.6%.

Article Summary

Chief Economist Sharon Zollner and her team at ANZ have revised their forecast for the Official Cash Rate (OCR). A rise above 5.50% in the February meeting of the Reserve Bank (RBNZ) now seems less probable. This adjustment is a result of the inflation and labour market data for the September quarter turning out to be weaker than expected. A set of new monthly price indices, accounting for 45% of the consumer price index, was coined for the first time this week, indicating a potentially lower than anticipated inflation number.

Despite the softer data, Zollner holds that there’s still a reasonable probability for the RBNZ to increase the OCR above 5.5% to bring inflation back into balance. However, this possibility is now viewed as less than 50%. Economic analysts remain split on whether the observed slowdown will sufficiently counterbalance the rise in population, gross domestic product, and housing prices. The recent strengthening of the New Zealand dollar also provides another reason not to expect an OCR hike.

Zollner anticipates that the RBNZ will maintain a firm stance in its November meeting regardless of the improved data, given that financial markets are already predicting abruptly falling rates. Overnight swap rates have also seen a decrease in recent weeks due to the softer local data and diminished expectations for higher interest rates in the United States. The task of decreasing inflation from 7.3% to around 4% is viewed as relatively straightforward by Zollner, however, the final reduction to the target 1%-3% range could pose significant challenges.

UBS Economist Nic Guesnon predicts that the RBNZ will cut rates by mid-next year while inflation is still above target, spurred by increasingly apparent weaknesses in the labour market. Guesnon forecasts a 25 basis point initial rate cut by the RBNZ in August 2024, projecting the OCR to drop to 4.5% by the end of 2024, along with an unemployment peak of 5.6% and inflation falling to 2.2%.

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