Growing market turmoil and trade war concerns have lifted the odds on the Reserve Bank cutting the official cash rate to 0.75 per cent by the end of the year.
Tomorrow Reserve Bank Governor Adrian Orr is widely expected to cut the official cash rate by 25 basis points to a fresh low of 1.25 per cent.
ANZ economists today changed their OCR call and are now picking three cuts this year.
"We now expect 25bp OCR cuts in August, September, and November, taking the OCR to 0.75 per cent," wrote ANZ chief economist Sharon Zollner in a new report titled "Turning Sour".
"Global risks have escalated dramatically in recent days as Trump imposed further tariffs on China's imports," she wrote.
China has retaliated by stopping purchases of US agricultural goods and allowing the yuan to depreciate.
"The reaction in global markets has been dramatic, with sharp falls in equities and bond yields, and we expect the volatility to persist," Zollner said.
New Zealand's NZX-50 was off as much as 2.3 per cent at one point.
All of this was going on against a backdrop of weakening domestic economic data, Zollner said.
"The economy is vulnerable, and inflation is below target and set to fall."
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Kiwibank economists are also picking the Reserve Bank will be forced to take the OCR below 1 per cent.
"We now put a move to one per cent as an 80-90 per cent certainty, in November," said chief economist Jarrod Kerr. "And we put a move to 75bps as a 60-70 per cent probability, in early 2020. The probability of a move to 50bps is not insignificant at 20-30 per cent."
Domestically, the forward indicators of growth had weakened, he said.
Both Kerr and Zollner noted the historic nature of the strong (3.9 per cent) unemployment number for the June quarter.
"The cost pressure firms complain of, is not being passed on," Kerr said. "That's a sign of weakness. Business confidence remains in the doldrums and is impacting growth. What we need is a significant lift in fiscal stimulus. What we're getting is a significant cut in monetary policy."
ASB economists have also addressed the possibility of much deeper cuts in their latest outlook.
"Our core view is that the OCR will plateau at 1 per cent in November after another 25bp cut. However, we still see the balance of risks to the global and domestic outlook skewed to the downside and there is the risk that the OCR is cut earlier and the OCR trough is deeper," ASB wrote.
How low could the OCR go?
"The OCR could potentially move below zero per cent and there is scope for the RBNZ to adopt unconventional monetary policies, but they may be of limited impact and carry risks," ASB said.
"When push comes to shove, we believe that the OCR could go as low as 0.5 per cent."