“Who’d want to be a central banker right now?” says BNZ head of research Stephen Toplis.
“There is always significant uncertainty about the economic outlook and the corresponding appropriate monetary policy. But rarely is there the sort of uncertainty we are experiencing now, thanks largely to Donald Trump’s tariff policy gyrations.”
Despite the relative calm on markets since China and the US reached a tariff truce, Toplis said he still expected the net impact to be negative for growth globally and for New Zealand.
“On this basis alone, it is reasonable to assume the RBNZ will either lower its growth forecasts or, at the very least, raise the perceived risk of lower growth,” he said.
“All other things being equal, this means medium-term inflationary pressures should also be reduced.”
Expectations for where the Official Cash Rate (OCR) will end up have lowered since February, when the RBNZ indicated that it might pause at 3.35%, with the prospect of cutting to 3% by the end of the year.
Since then, forecasts have shifted to a low point of 2.75% or 2.5% by the end of the year.
“We, and the Reserve Bank, follow the BNZ-Business NZ PMI and PSI closely for indications of the current state of the economy,” Toplis said.
“Unfortunately, these indicators, when combined, suggest that the acceleration in growth that we had bargained on starting soon may be under threat.”
The broad trend was still in the right direction, but signs of more progress were needed, he said.
“We think the end point for the RBNZ’s OCR track will be lower relative to the February MPS [Monetary Policy Statement] – reflecting the risks to growth, but not by as much as market consensus,” said ASB economist Wesley Tanuvasa.
“Pronounced uncertainty means the RBNZ will want optionality on policy moves, so we’d expect cautious, data- and event-dependent commentary on the outlook for monetary policy.”
Given Budget 2025’s focus on fiscal consolidation, the onus likely leaned towards monetary policy for short-term growth, he said.
However, a stronger rise in near-term inflation might raise the RBNZ’s threshold for delivering policy support.
“Our concern is that the few growth drivers in the economy lose steam before a kiwi-driven rebound can take place,” he said.
“We still think the RBNZ will need to provide modest policy support by way of a 2.75% year-end OCR. But it’s a highly uncertain and changeable environment, including for estimates of where the OCR ends up.”
Westpac chief economist Kelly Eckhold said he expected the RBNZ would still assess the economy as being on a recovering trend.
“However, it will probably view the recovery in domestic activity as somewhat weaker than hoped, but stronger than expected in externally focused sectors.”
Eckhold expected the RBNZ to present downside and upside scenarios.
The downside scenario would likely imply more policy adjustments than the upside scenario, he said.
BNZ’s Toplis also said he expected to see the RBNZ present a range of scenarios.
“Generally speaking, we would not be averse to this approach,” he said.
“But given that the number of potential scenarios now verges on infinite, scenario analysis might indicate a degree of certainty about potential outcomes that is currently unwarranted.”
“Whatever the bank does, it needs to highlight, and highlight again, the massive uncertainty that is pervasive and the fact that such uncertainty means very little about the future can be taken for granted, including future interest rate settings.”
Liam Dann is business editor-at-large for the NZ Herald. He is a senior writer and columnist and also presents and produces videos and podcasts. He joined the Herald in 2003.
