Kiwibank believes Reserve Bank governor Graeme Wheeler will cut interest rates this month.
Kiwibank believes Reserve Bank governor Graeme Wheeler will cut interest rates this month.
Kiwibank is betting the Reserve Bank of New Zealand will cut interest rates at its meeting next week, becoming the first local bank to officially put its stake in the ground for a move this month.
The state-owned lender, a division of New Zealand Post, has changed its view, predictingthe RBNZ will cut interest rates by 25 basis points in March and June to take the benchmark to a record low 2 per cent, compared with its previous view that rates would remain on hold at 2.5 per cent for the remainder of this year.
Reserve Bank governor Graeme Wheeler cut the benchmark four times last year and in his review of the official cash rate in January, he opened the door for further cuts, having indicated he was done doing so in the December monetary policy statement. Last month, he repeated that some further policy easing may be needed over the coming year to nudge future average inflation back to the 2 per cent mid-point of the 1 percent to 3 per cent band in the policy targets agreement.
"Over the past month, we have seen several pieces of data that have convinced us of the need for a lower OCR to ensure that the RBNZ can meet its policy targets over the medium term, these include; significant fall in inflation expectations, waning business confidence, a lower global growth outlook and strong gains in the New Zealand dollar," Kiwibank senior economist Zoe Wallis said in a note titled Shifting sands.
"The global growth outlook has weakened at the same time as dairy prices continue to fall and the New Zealand dollar remains elevated - reducing New Zealand's growth and inflation outlook," she said.
"Given the changes in the domestic and global environment, we now anticipate that the RBNZ will need to further cut the OCR down to 2 per cent in coming months. While there are some arguments in favour of waiting, we see 25bps rate cuts in March and June as the most reasonable response to the shifting outlook."
Traders are currently pricing in about a 30 per cent chance of a rate cut at the Reserve Bank's March 10 meeting. A 25bps cut is fully priced in for June, with a 50 per cent chance of another cut by the end of the year, Wallis said.
