An update on the Office Cash Rate is due tomorrow with most expecting it to remain as is. Based on the GDP and business confidence, the prediction is still for the OCR to drop a further 25bps before the end of the year. However, experts are not expecting that to happen until the November announcement alongside a full Monetary Policy Statement release. With a surprising cut of 50bps in August, it would also make sense for the Reserve Bank to wait for the dust to settle and see if their plan has worked.
With the OCR seemingly heading towards zero, Economists are beginning to question whether or not the RBNZ is doing the right thing. Increasingly, there has been a lot of fiscal policy support and little monetary policy support, which has all the experts doubting the effectiveness.
BNZ head of research, Stephen Toplis commented that they “do not believe lower rates are the answer to New Zealand's current concerns". Toplis further said "there is no argument that New Zealand's economic growth continues to become more modest, but OCR-based monetary policy will have a minimal future effect on consumer and investment expenditure and employment growth. Increased asset price inflation would result and is not desirable".
The RBNZ is lowering interest rates to encourage exports, investment and an appetite for risk to ensure that aggregate demand will remain resilient enough despite any uncertainty. However, is this sufficient enough to stave off a self-fulfilling downturn? Is a more novel approach to policy needed instead?
No matter what the answer may be, it seems that everyone has concluded that a further OCR cut of 25bps is on the cards and is due to happen before the end of the year. The previous 50bps cut hasn't improved business or consumer confidence, but it is still early, and this is why a cut in November is more likely.