ANZ economists are now picking that the Reserve Bank will start cutting the Official Cash Rate in August.
ANZ chief economist Sharon Zollner said she now expects the RBNZ to deliver a steady sequence of 25 basis point cuts starting in August, taking the OCR to 3.5% (from 5.5% currently) over 12 months.
She says based on ANZ's current forecasts, by the September quarter inflation will be back in the 1% to3% target band and unemployment will have "cracked the 5% mark and is still rising".
"August is not a strong conviction call by any means, and we currently see the risks as roughly balanced on whether the RBNZ starts cutting earlier or later than that. We would also note there’s still a chance of a hike, either in February if we get ugly CPI details or later in the year if inflation ultimately gets ‘stuck’."
Zollner said over the next six months, a strong supply recovery, previous weak GDP outturns and a deteriorating labour market should result in rapid disinflation for domestically driven Consumers Price Index (CPI) components.
"But with forward-looking activity indicators picking up, the RBNZ will remain wary of the risk of a second wind for the economy before persistent inflation is rooted out," she says.
"We don’t expect a lot of advance warning of policy easing. The sensible strategy for the RBNZ is to deny-deny-deny-cut, in a bid to avoid a premature easing in financial conditions that would be hard to haul a dovish market back from.
"Based on our macro view, markets are underestimating how long the “deny” part of that strategy will last."
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