There's upheaval inside the Reserve Bank, there's upheaval outside of the Reserve Bank, but we'll still get our promised 25 point Official Cash Rate cut

Well, last time we wondered whether the Reserve Bank (RBNZ) would keep a promise.

It did.

This time, intriguingly, we get to find out whether the RBNZ will still keep a promise even if said promise was made by somebody who's now no longer even with the organisation.

In short, the answer is of course, a big 'yes', it will, and the near-pledge made by then Governor Adrian Orr that the Official Cash Rate (OCR) will be cut by 25 basis points is set to be delivered at the OCR review on Wednesday, April 9.

It would take something very untoward to stop another cut.

And, okay, I can read your mind - if we look at the current global situation, 'untoward' is a word that definitely comes to mind. At time of writing, I was grappling - along with everybody else in the world - with what the whole tariffs situation means. Clarity will take some time. If indeed we get it at all. Global economists are making early assumptions/guesses that all things equal the tariffs could lead to a greater level of easing by central banks around the world.

But in little old NZ we have to carry on assuming 'normality' till we are directly confronted with the abnormal. And for now that means the RBNZ's monetary policy easing cycle that began in August of last year will continue along the previously planned path. That means definitely a 25 point cut this coming week.

And the follow up cut promised for May? Well, we can talk about that shortly.

To recap on where we've been and where we (think) we are going, between October 2021 and May 2023 the RBNZ hiked the OCR from 0.25% to 5.5% and then 'paused' to see what its efforts had managed to achieve against the runaway inflation that peaked at 7.3% in mid-2022.

As at the December 2024 quarter, inflation was 2.2%. Job done. (At least, for the moment.) Since August 2024 the OCR has so far been reduced to 3.75%. The last cut, of 50 basis-points had effectively been promised by Orr before Christmas and was duly implemented at the first OCR review of this year on February 19.

A promise, and a departure...

And it was after that February 19 cut that Orr dipped into the pledge basket again, effectively promising 25 point cuts in each of the April and May reviews. Then he left. 

RBNZ Deputy Governor Christian Hawkesby is, at least for now, in the governor's chair. And he will chair the Monetary Policy Committee (MPC) meeting that decides whether to go ahead with the 'promised' cut or not.

Given all the background circumstances, it has to be supposed that the RBNZ will be keen not to upset the apple cart at this OCR review. So a cut it will be.

Do we have any reason to doubt the logic of another cut at this stage?

Interestingly, Westpac chief economist Kelly Eckhold - a former RBNZ staffer -  said in his preview of the upcoming OCR decision that while he thought the RBNZ would cut - they shouldn't. Moving more slowly "is more likely to be appropriate", he said.

Does he have a point?

Well, there's not been much hard economic data released since the last OCR decision on February 19, but some of it has been suggestive of an economy that's recovering faster than thought, while inflation's showing signs of simmering again.

GDP figures for the December quarter, released on March 20 showed a 0.7% rise as against the RBNZ's expectation of a 0.3% increase.

Did somebody say, 'disconcerting'?

The next quarterly Consumers Price Index (CPI) inflation figures are not due out till April 17, but the monthly Selected Price Indexes (SPI) data, particularly in January, showed what one economist described as "unwelcome momentum". Food prices rose 1.9% in January, although this was somewhat reversed with a 0.5% drop in February. The SPI has components that account for about 45% of the CPI.

ANZ's monthly Business Outlook survey for March showed a "disconcerting lift" for firms' cost and pricing indicators. 

One thing I didn't have in front of me writing this, but the RBNZ's MPC will have in front of it when it makes the OCR decision on Wednesday is the NZIER's latest Quarterly Survey of Business Opinion (QSBO). This is being released on Tuesday and as a very long established (1961) survey it carries a lot of weight with the RBNZ. 

To date the QSBO results have tended to show a more benign picture of cost and pricing pressures than the ANZ survey - but if the results out on Tuesday do in any way echo the ANZ survey this could cause some discomfort for the RBNZ.

We shall see.

Either way, if we assume all will be as 'promised' by the now departed Governor Orr for this April OCR review, what about the next OCR review in late May?

Will the implied 'promise' of another follow up 25 point cut at the May OCR review, definitely just be rubber stamped by the MPC? 

Well, we are getting ahead of ourselves. But one thing to definitely look for with the coming week's OCR decision is whether the commentary in any way suggests that future cuts are not a given.

Time for some raised eyebrow-speak?

This (April) OCR decision is one of those styled as a Monetary Policy Review (MPR). These ones alternate with the Monetary Policy Statement (MPS) decisions. The MPS decisions come complete with a normally 60-pageish bells and whistles document complete with fresh forecasts.

But the decision in the coming week won't have new forecasts and it will be just a brief one page statement accompanied by the record of the MPC meeting.

Generally the RBNZ doesn't like making big changes of direction at MPRs because it can't explain any major changes in the way it can in an MPS review, where it can do so with as much verbiage as it wants and accompanying charts and graphs.

But if the RBNZ is no longer comfortable that another cut in May should be seen as a sure fire thing, it could moderate the language used in that brief statement in the coming week and say something along the lines that any future further easing would be dependent on the development of the data flow, ie, that it would be, as the economists like to put it, 'data driven'.

Such a remark, which is typical RBNZ 'raised eyebrow' indirect speak, would tell us that another cut is not guaranteed next time. If there IS such a comment in the coming week, we can expect to see some financial market reaction. Otherwise if all proceeds as expected, market reaction will likely be very muted.

Beyond this OCR decision in the coming week and the next one in May, where do we go? 

Is this the end or a beginning?

The assumption is we are getting somewhere near the end of this easing cycle. However, as stated further up the article there is the inconvenient matter of the whole global situation being in flux.

I'll leave you with Kiwibank's chief economist Jarrod Kerr, senior economist Mary Jo Vergara and economist Sabrina Delgado, who sum up the situation, thus:

"...We expect the RBNZ to acknowledge these global risks. The beginnings of our economic recovery – as fragile as it is – has largely been driven by the external sector. A disruption to global trade does not bode well for the Kiwi ‘small, open’ economy. An escalation of the tariff trade war, should countries retaliate, could stall our expected economic recovery. And such a scenario would require the RBNZ to push the cash rate below 3%."

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