Will we see an OCR cut next week?

Man in business attire, pointing at graph with pen

The OCR and the monetary policy are due to be announced next week which will be the last announcement for this year. Banks have consistently predicted that a cut is more than likely to happen, but now, one week out, it seems that most are having second thoughts. The economist team at BNZ once gave a 90% chance of a cut happening before the end of the year but this week have changed their minds and given 50% odds of it happening.

Westpac NZ CEO David McLean also spoke recently of this doubt on whether another cut would stimulate the economy and said that he's more worried about the margins from the banks' perspective and the deposit rate.

It seems that ANZ and ASB are the only banks who think cutting next week is more than likely.

So why the turnaround from the banks regarding the OCR? It seems that the latest data from the banks' economic outlooks are showing some small signs that business confidence may be picking up. We still argue that this is simply due to the time of the year, where we typically see an increase in economic activities around the Christmas period. If another cut doesn't happen this year, then it's like to happen next quarter. Would a delay in another cut be good for business confidence, or would it simply create more uncertainty?

We still think that another OCR cut is likely to happen next week. Inflation is low right now, and we feel that this will continue that way. An interesting article written by Squirrel CEO John Bolton talks about how the cost of making technology is getting lower, and we see a lot of new technology entering the market at lower prices. This trend will likely keep costs down for businesses and households, which will be a significant contributor to prices staying low in the future. Another cut this year will likely stimulate firms going into the new year, and a cut now is likely more encouraging than a cut next quarter.

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