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    Home»Business»RBNZ set to make sixth rate cut and signal bias to more easing
    Business

    RBNZ set to make sixth rate cut and signal bias to more easing

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    [WELLINGTON] New Zealand’s central bank is set to cut interest rates for a sixth straight meeting and signal it’s open to further easing as US trade barriers dim the economic outlook.

    The Reserve Bank of New Zealand (RBNZ) will lower the Official Cash Rate (OCR) by 25 basis points to 3.25 per cent on Wednesday (May 28) in Wellington, according to 22 of 23 economists surveyed by Bloomberg. One predicts a 50-point reduction.

    The Monetary Policy Committee is expected to flag at least one more cut by projecting that the OCR could drop below 3 per cent this year.

    “We see the RBNZ’s OCR profile being revised down by around 20 basis points to around 2.9 per cent by the end of 2025,” said Kelly Eckhold, chief economist at Westpac in Auckland. “Beyond this meeting, a data-dependent easing bias seems likely.”

    The RBNZ said last month it has scope to lower rates further as US tariffs create downside risks for both economic activity and inflation. While trade tensions have eased somewhat since then, ongoing uncertainty is still expected to dampen New Zealand’s recovery from last year’s recession.

    The RBNZ will publish its decision at 2 pm local time on Wednesday and governor Christian Hawkesby will hold a press conference an hour later. The bank will also update its economic forecasts, giving an indication of how much it expects global trade turmoil to impact on growth.

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    “Despite tariff de-escalation, we continue to view the US-China trade war as a net negative to the New Zealand economy and inflation over the medium term,” said Wesley Tanuvasa, an economist at ASB Bank in Auckland. “Pronounced uncertainty means the RBNZ will want optionality on policy moves, so we’d expect cautious, data- and event-dependent commentary on the outlook for monetary policy.”

    Unemployment steady

    Recent data has been mixed. Unemployment held steady at 5.1 per cent in the first quarter, defying expectations it would rise. Commodity prices have been strong and inflation expectations have risen.

    Economists and the RBNZ expect inflation itself to accelerate towards the top of the central bank’s 1 to 3 per cent target range from its current 2.2 per cent pace before slowing again next year.

    At the same time, the housing market is subdued, business confidence has dropped and the government delivered a tight budget last week that the Treasury Department expects will allow interest rates to fall further.

    Some economists forecast the RBNZ will cut the OCR to 2.5 per cent this year, while investors see a reasonable chance that it will be lowered to 2.75 per cent.

    “In this kind of environment, there’s plenty of leeway for strategy to play a role,” said Sharon Zollner, chief New Zealand economist at ANZ Bank in Auckland. “We continue to expect that the RBNZ will ultimately deliver an OCR of 2.5 per cent, but we don’t expect them to signal such an outcome at this stage.” BLOOMBERG

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