ANZ's Sharon Zollner (pictured) expects a 25 basis point cut in November 2019, with a further 50 basis point drop over the course of 2020. Such a cut would see the OCR plunge below today's historical low of 1.75%, leading to an unprecedented period of low interest rates.
ANZ previously predicted the OCR would be flat for the "foreseeable future". However, concerns around global growth and liquidity, and weak inflation, have made the economist change her mind.
Zollner believes the RBNZ will conclude economic growth is not strong enough to put inflation at its target midpoint. She said: "We have not changed our view that GDP growth will muddle along in the 21⁄2-3% range over coming years."
It come as figures today revealed New Zealand GDP growth fell to 0.3% in September, short of expectations. Zollner added: "It is certainly not a case of us expecting that the economy is about to roll over, and it is ironic that we are changing our call just as business sentiment indicators are improving. But economic momentum is nonetheless a little softer."
Global issues have also made ANZ change its mind. Zollner said the US/China trade war could weaken demand for New Zealand goods.
Zollner said the RBNZ's new capital adequacy proposals could also impact the OCR. She said the new rules "implied" a lower neutral OCR and "even lower OCR over the five year transition period.
ANZ has long adopted a more dovish view on the OCR. Earlier in the year, the bank's economists said they believed a cut could be more likely than a hike. RBNZ's official prediction remains a hike in 2020.
Zollner expects interest rate volatility over the next year but believes monetary stimulus will be on the way next year: "It is important to note that it is unlikely to be a smooth path for interest rates between now and an eventual OCR cut. Market pricing is likely to continue to wax and wane, and we would not be surprised to see the data cause some volatility in the interim, especially given the recent increase in business confidence and potential upside to Q4 GDP.
"The economy is still performing well. But over time, we expect that it will become clear that the economy needs more of a leg up from monetary stimulus if inflation is to lift sustainably to target," Zollner added.
