Economists see the Reserve Bank as still on track to make further cuts to the Official Cash Rate at each of the next OCR reviews despite GDP figures out last week surprising to the upside.
The RBNZ had expected the economy to grow by 0.3% in the December quarter, but it grew by 0.7%, snapping the country out of a short, sharp recession that had seen GDP shrink by 1.1% in each of the June and September 2024 quarters. These sharp falls followed extensive revisions to earlier data by Statistics NZ.
At the last OCR review on February 19 Adrian Orr - in what turned out to be his last review as RBNZ Governor before his abrupt resignation and departure - all but promised 25 basis point cuts to the OCR at each of the next two reviews on April 9 and May 27.
Assuming those cuts go ahead, this would take the OCR down to 3.25%. Before the RBNZ started cutting the OCR in August 2024 it was at 5.5%.
The cuts have come against a backdrop of inflation returning comfortably to the targeted 1% to 3% range (2.2% as of the December quarter), while at the same time the economy ground to halt.
Westpac senior economist Darren Gibbs said in Westpac's Weekly Economic Commentary that the RBNZ will likely continue to treat the GDP data with caution, "and so we don’t expect that this [GDP] upside surprise will have much impact on the near-term policy outlook i.e., we continue to expect a 25bp cut in the OCR at the April and May meetings".
"However, the firmer outcome does increase the likelihood that the easing we expect in May proves to be the last for this cycle. If the post-Orr MPC is of a mind to slow down the pace of easing, then this is a piece of data they might point to."
In ASB's Economic Weekly, ASB chief economist Nick Tuffley said the RBNZ is "understandably careful" about how much it reads into the implications of GDP for inflation, in the wake of such large revisions made to GDP figures last year.
"So far, the inflation outlook remains comfortable for the RBNZ. Two 25bp cuts over April and May remain highly certain," he said.
"Beyond that remains a question mark, with potential for global events to prompt slightly further action depending on how the tariff war crimps global growth and potentially dampens NZ inflation."
Tuffley noted that while four-quarter GDP lifted by more than expected, "the drivers of growth relied on foreigners buying our goods and coming to NZ to spend money in person".
He said the domestic spending recovery "hasn’t materially picked up yet".
"That will come progressively as home-borrowers gradually roll on to lower mortgage rates," he said.
And Westpac's Gibbs note that recent interest rate cuts will put "a lot" of money back into many borrowers’ pockets.
"To put it in context, if you have an average priced home and 50% mortgage, the 190bp [basis points] drop in the one-year mortgage rate over the past year could reduce your minimum monthly mortgage payments by about $400."
He said this is equivalent to roughly 5% of the average households’ disposable income.
"That sort of fall would be one of the biggest drops in debt servicing costs that we’ve seen in the last 30 years," Gibbs said.
"In fact, relative to the level of disposable income, the only time we saw a larger fall in interest costs was during the 2008/09 financial crisis. During that time, average house prices were around 50% lower than they are now. However, the OCR was cut by a massive 575bps in less than one year (compared to the fall of 175bps in the current cycle)," he said.
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