By Veronica Dudei Maia Khongwir
BENGALURU (Reuters) – New Zealand’s central bank will follow through on plans to cut interest rates more with a 50 basis-point reduction on Wednesday to 3.75%, according to a Reuters poll of economists, who also expect a further 75 bps of easing this year.
After a cumulative 125 bps of cuts since August last year, the Reserve Bank of New Zealand still has more work to do to boost an economy struggling out of recession with still-rising unemployment.
With inflation at 2.2% last quarter – within the RBNZ’s target range of 1%-3% – the central bank has room to cut rates on February 19.
At its November meeting RBNZ Governor Adrian Orr signaled a 50 bps cut this month, and there has been very little to alter the view that the central bank will follow through on that.
Thirty-two of 33 economists in the February 10-13 Reuters poll expected the central bank to cut the official cash rate for the fourth straight meeting next week, and by 50 bps to 3.75%. One expected a 25 bps reduction.
“The RBNZ gave a pretty clear signal last year when it was announcing the November monetary policy statement. We think enough has happened to keep the central bank on track for that 50 basis-point cut,” said Nick Tuffley, chief economist at ASB Bank.
“Whilst the RBNZ wouldn’t have been wanting to put the economy into recession, it has taken a considerable slowing of the economy to get inflation back down. Given how persistent inflation has been it’s probably hard to argue that it has done too much.”
All major banks in the country – ASB, ANZ, BNZ, Kiwibank, and Westpac – expected a 50 bps cut on Wednesday.
A clear majority of economists, 20 of 29, expect another half percentage-point cut in April. Median forecasts indicated a 25 bps cut in the third quarter as well, which would bring the interest rate to 3.00% by the end of September.
Among those with a year-end forecast, 18 of 27 respondents expected the policy rate to be at 3.00% or lower. Seven predicted rates at 3.25% and two said 3.50%.
That would mean a total of 250 bps’ worth of rate cuts in 17 months, many more than the U.S. Federal Reserve. The Reserve Bank of Australia is expected to cut rates for the first time in more than four years on February 18. [AU/INT]
According to a separate Reuters poll taken in January, the New Zealand economy is expected to grow 1.2% this year and 2.6% in 2026. Inflation is forecast to average 2.1% this year and 2.0% next.
(Other stories from the February Reuters global economic poll)
(Reporting by Veronica Dudei Maia Khongwir; Polling by Vijayalakshmi Srinivasan and Devayani Sathyan; Editing by Ross Finley and Hugh Lawson)
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