Reserve Bank will hold OCR cuts until September, ANZ says (Update 1)

ANZ economists said they are now expecting the Reserve Bank to hold the Official Cash Rate at 2.50% in June and July, before resuming cutting it in September, as the 'green shoots' of recovery currently being seen do not take hold. (Update 1 includes Westpac OCR forecast.) ASB economists said they still expect the Reserve Bank to cut the OCR by 25 basis points in both June and July following better-than-expected unemployment figures this morning. Westpac economists said that the unemployment figures, together with other recent data, were beginning to build a strong case for the Reserve Bank to pause OCR cuts in June. The Reserve Bank had forecast unemployment to rise to 5.2% in March. "Ultimately, we do not expect those green shoots to take hold, given that the labour market is still set to deteriorate and will be a key barrier to any further resurgence in domestic demand," ANZ economists said. "And despite recent optimism over the global environment, it is still too early to be sure that things are materially on the mend." "We now expect the RBNZ to pause in June, before resuming from September as signs of those green shoots wilt. The RBNZ has massively front loaded policy since July last year, with 575bps of cuts to date, hence there is less pressure to act from this juncture, particularly with the OCR at 2.5%," they said. "While we are in no doubt that significant challenges remain, including the currency, and the RBNZ will no doubt be frustrated by the lack of follow through from their 50bp cut in April, the tenor of the dataflow has changed." "With the OCR already at 2.5 percent, there is a strong justification for keeping some ammunition in reserve for later should it be required, or at least when policy has better prospects for gaining traction."