Wednesday, 27 November, 2024
RBNZ – Westpac: Another 50bp in February more likely than not
Another 50bp in February more likely than not
The RBNZ delivered the expected 50bp cut and looks set to continue at this pace in February. We now see a 50bp cut to 3.75% as more likely than not at the February Monetary Policy Statement.
- The RBNZ cut the OCR by 50bps to 4.25% at its final policy meeting for this year.
- The RBNZ’s OCR forecast profile was revised down as expected and now shows the OCR at 3.55% at the end of 2025. The Governor indicated the forward track was consistent with a 50bp cut at the February MPS but then a slower pace later in 2025.
- The Governor indicated the neutral OCR likely lies in the 2.5% – 3.5% range.
- Beyond this year, the RBNZ’s forecasts for economic growth have been revised down somewhat, reflecting a downward revision to assumed potential output (in particular, slower population growth due to smaller migrant inflows).
- Revisions to the RBNZ’s historical estimates of the output gap imply that there is less spare capacity than estimated previously, and thereafter a less negative gap over the forecast horizon than projected previously.
- The peak unemployment rate has been revised down to 5.2%, consistent with the starting point surprise seen in the Q3 data.
- Inflation is forecast to remain at or above 2% – non-tradables inflation has been revised up in the near term and is in line with Westpac’s forecasts.
- The RBNZ sees balanced risks for inflation. There remains some uncertainty on how quickly domestic inflation pressures will normalise, balanced by uncertainty on how quickly the economy will respond to interest rate cuts.
- We now think that it’s more likely than not that the RBNZ will cut the OCR by 50bp in February 2025, contingent on the economy and financial conditions evolving in line with our expectations.
- After that, uncertainty around the OCR outlook is higher, but we think the easing cycle will be over by mid-year, with the OCR still troughing at 3.5%.
Link to Review of RBNZ November 2024 Monetary Policy Statement:
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