The bank originally forecast that that the Reserve Bank would make OCR cuts in September and then November of this year.
However, recent rhetoric from Reserve Bank officials has led BNZ economists to believe it will defer any further rate reduction until the occasion of November’s MPS.
BNZ senior economist Craig Ebert said they now see November and February as the Reserve Bank’s likely strike points.
“We still see an OCR low of 1.50%, just that it arrives a bit later,” he said.
“Importantly, this assumes the Reserve Bank will follow through with its strong easing signals – consistent with the CPI inflation (expectations) battle it has indicated is crucial to it, amid a strong currency.”
BNZ has not delayed its OCR sequencing because of any change in their base view of the economy or CPI inflation.
Ebert said they continue to stress that the Reserve Bank is, more generally, at risk of cutting the cash rate far too much – if it hasn’t done so already.
“Our amended OCR view is about what we think New Zealand’s central bank will do as opposed to what we think it should do.”
If the Reserve Bank wanted an excuse to delay further OCR reduction until November then it could find it in recent domestic news, he said.
This is because of today’s strong employment data, some recent recovery in dairy prices, and signs that the deflationary bent in producer prices and capital goods prices are abating.
However, Ebert said that, despite increased evidence of a robust real economy and firming inflation undercurrents, the Reserve Bank was hinging a lot on its headline CPI forecasts and peoples’ expectations thereof.
“Downplayed is the (PTA) flexibility that the Reserve Bank quite rightly emphasised earlier this year.
“It now seems a pitched battle about lifting headline CPI inflation, come what may.
“As for the stubbornly strong currency, as much as this might keep suppressing tradables inflation, it is concurrently reflecting New Zealand’s relative economic health. Therein lays the irony.”
