One OCR, two economies: why yesterday's rate cut may not be enough
The 'bob each way' OCR cut
The Reserve Bank yesterday trimmed the official cash rate (OCR) from 3.25% to 3%, while signalling that two more are likely by the end of the year. The bank's Monetary Policy Statement (MPS) said it saw the OCR falling to 2.5% by early 2026 – a sharper fall than the 2.75% low it envisaged in May. What made the announcement unusual, writes David Hargreaves of Interest.co.nz, was the division among the monetary committee: in only the third formal vote since the committee was created, two of its six members pushed for a deeper 50-point cut, to 2.75%. Acting governor Christian Hawkesby stressed that every future decision remained 'live', but the bank is now firmly leaning towards further easing. The split decision reflects 'the emerging contrast between a flagging economy and rising inflation', writes Hargreaves, and the challenge of boosting the former while not further spiking the latter.
Why not go harder?
The committee members urging a more aggressive cut argued that the economy is sputtering badly enough to justify faster stimulus. But the majority worried that a 50-point move would risk reigniting price pressures, particularly in light of last week's stats showing food inflation running at 5%. The Reserve Bank's mandate is to keep inflation within the 1–3% band, and the MPS expects the annual rate will be at 3% by the end of the September quarter.
In the end, officials voted to avoid moving too fast, too soon. Hawkesby said the downside risk of the decision was the slowdown lasting longer than expected, 'and really needing more of a jolt and more aggressive action from us to right the economy', RNZ reports. But by opting for a smaller cut, the committee bought itself time to observe how household spending, mortgage refinancing and wage growth responded before deploying heavier artillery.
A two-speed recovery
New Zealand's increasingly uneven recovery further complicates the picture. As Liam Dann observes in the Herald (paywalled), the Reserve Bank can only set one cash rate for an economy that is currently running at two speeds. Urban centres are still burdened by sluggish housing markets and higher unemployment – Auckland's jobless rate is over 6% – while rural regions are buoyed by strong export commodity prices. 'If the RBNZ were just setting borrowing costs for Auckland and Wellington then the need for further cuts would be a no-brainer,' he writes. Meanwhile billions of dollars are flowing into the country through the primary sector. That should eventually stimulate growth, though 'it looks like many farmers are using strong returns to pay down debt' rather than going shopping.
Cuts alone won't cure deep-set weaknesses
For now, ministers are talking up the positives. Prime minister Christopher Luxon hailed the OCR cut as 'fantastic news' for homeowners, while finance minister Nicola Willis said the Reserve Bank's projections showed 'objective data' proving that things were 'absolutely getting better'. Yet the reality is more sobering. As Auckland University's Rod McNaughton argues in Newsroom, citing a June IMF report, New Zealand's economy is structurally skewed towards low-productivity sectors like finance and real estate. Too few of our fast-growing 'gazelle' firms are in technology or ICT, unlike in countries such as Australia or Sweden. The result is an economy that grows by adding hours and people rather than lifting output per hour.
'New Zealand's economy is not underperforming by accident,' McNaughton warns. 'If we continue to reward property-backed expansion and underwrite financial returns in low-productivity sectors, we should not be surprised by the outcomes.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
NZ Herald
3 hours ago
- NZ Herald
Race for Reserve Bank governorship heats up – Christian Hawkesby coy on why he wants the job
'I think they should all be given their fair due right to be assessed.' Others touted to be in the running include former Treasury chief economic adviser Dominick Stephens, Auckland University macroeconomics professor and Reserve Bank Monetary Policy Committee member Prasanna Gai, and Motu Research executive director John McDermott. Stephens is seen to be a safe pair of hands. He has been the Treasury observer on the Monetary Policy Committee and has experience communicating with the public as Westpac's former chief economist. Gai is highly respected globally for his work in academia. He held leadership roles at the Bank of Canada and is a Financial Markets Authority director. Similarly, McDermott is very well qualified and has experience as a former assistant governor and head of economics at the Reserve Bank. There has also been talk of Bank of Canada deputy Governor Toni Gravelle being in the running. However, New Zealand doesn't feature in his CV. The coalition Government has (thus far, at least) appointed known entities to top jobs in the public sector. Secretary to the Treasury Iain Rennie and Public Service Commissioner Sir Brian Roche are examples of this. The Governor role requires expertise in both economics and the regulation of financial institutions. The Governor also needs to be a good communicator and people manager as the head of a large organisation. Hawkesby has experience in the above. Being at the helm of the Reserve Bank since Adrian Orr's sudden resignation in March, he has been leading a major restructure in line with the bank receiving less funding than it anticipated last year. Since Orr's departure, the Reserve Bank board has also followed the wishes of the Government by reviewing whether its bank capital rules need to be loosened. Hawkesby was instrumental in the design and rollout of these rules, as the Reserve Bank's former head of financial stability. The rules make banks stronger, but have been criticised by Willis and other members of the coalition Government for increasing the cost of borrowing. Members of the Government have also been critical of the Reserve Bank's Covid response, which Hawkesby played a key role in. This said, Willis and Prime Minister Christopher Luxon were beaming on Wednesday, when the Monetary Policy Committee cut the Official Cash Rate (OCR) by 25 basis points to 3%, and signalled its intention to give the economy a shot in the arm by cutting the rate more in the future than previously expected. Acting Reserve Bank Governor Christian Hawkesby surprised by the chilling effect US tariff uncertainty had in New Zealand. Photo / Marty Melville More on Wednesday's rate cut, and a misfire in May Speaking to the Herald about this decision on Thursday, Hawkesby was pleased the market interpreted the committee's statement as dovish. Indeed, swap rates, mortgage and term deposit rates, and the New Zealand dollar fell. Hawkesby recognised the committee signalling its intention to eventually cut the OCR to 2.5%, and making it clear that two of its members wanted the OCR to be cut by 50 basis points (rather than 25 basis points), was powerful in moving the market. He stuck by the committee's July decision to keep the OCR on hold, in the face of uncertainty caused by tariffs. However, he conceded that in May he should not have said he had 'no bias' going into the July meeting. This comment confused some observers, making them question the Reserve Bank's commitment to seeing the OCR fall. 'I think if I had my time again, I probably wouldn't have said that,' Hawkesby said, owning up to a misfire in a way his predecessor rarely did. Hawkesby explained he was 'surprised' by the chilling effect uncertainty caused by the United States' tariffs had on New Zealand households and businesses in April, May and June. 'That's the news that we're responding to now,' he said. 'That's the signal to us that interest rates need to go lower to help support the economy and that recovery that needs to happen.' Hawkesby clarified all six Monetary Policy Committee members agreed on the quantum of OCR cuts required. However, their views differed when it came to how quickly to make the cuts. Hawkesby said the committee's central projection was for 25-point cuts in October and November. 'But we've got optionality depending on how the data pans out.' The Monetary Policy Committee will have a new external member when it meets in October, as Bob Buckle's term has just ended. Willis is expected to announce this appointment, as well as the full-term Governor, in coming weeks. Jenée Tibshraeny is the Herald's Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
The Spinoff
4 hours ago
- The Spinoff
Right to repair bill stalls as NZ retreats on waste reform
Labour and Green MPs are accusing their government colleagues of negotiating in bad faith, while campaigners warn New Zealand is falling behind on recycling, writes Catherine McGregor in today's extract from The Bulletin. Right to repair bill on brink of failure Green Party co-leader Marama Davidson's Right to Repair Bill is unlikely to survive its second reading in Parliament, despite overwhelming public support. The bill, which sought to close a loophole in the Consumer Guarantees Act allowing manufacturers to opt out of repairs, would have compelled companies to provide spare parts, tools and repair information. Of the 1,250 submissions received, 95% backed the proposal. However, on Monday it emerged that Winston Peters had withdrawn NZ First's support, describing the law as 'unworkable and costly'. Speaking to Stuff's Esther Taunton in February, Paul Smith of the Right to Repair Coalition Aotearoa strongly disputed that claim, noting there is no evidence from overseas that repair laws push up prices for businesses. 'If you provide the parts, you don't have to provide the entire product [as a replacement].' Still, even after Davidson offered amendments to narrow the bill's scope – it currently covers all consumer goods, which many agree is too broad – Smith conceded to Consumer NZ that 'realistically there's little to no hope' of its passage. Concerns over select committee process Labour and Green MPs say the bill has not just been defeated, but deliberately undermined during the select committee stage. As The Post's Rob Stock reports (paywalled), the Economic Development, Science and Innovation Committee recommended that the bill not proceed, despite extensive cross-party workshopping of amendments designed to meet government members' concerns. In a report released on Monday, the minority Labour and Green MPs recorded 'serious concerns' with how the process was handled, noting that opposition members had engaged 'in the reasonable expectation that such engagement was aimed at building genuine cross-party agreement'. Instead, they wrote, 'the perception [is] that the process was used to keep the committee occupied rather than to improve the bill, at a cost to the public purse'. Why repair matters The impetus for Davidson's bill is a global economy increasingly dependent on disposable goods. 'Millions of appliances and electronic products are being dumped needlessly because they can't be repaired,' says Consumer NZ's Jon Duffy. 'It's costing us all, and it's costing the planet.' Electronic waste is one of the fastest-growing waste streams worldwide, and without a right to repair, New Zealand risks becoming a dumping ground for poorly designed, short-lived products, Duffy says. In Europe and the UK, right to repair laws already require manufacturers to provide spare parts for appliances for up to 10 years and ensure that repairs can be carried out with commonly available tools. Davidson's bill would have followed a similar path, giving New Zealanders the right to demand repair instead of replacement. Supporters argue this would not only reduce waste and emissions but also help grow a repair economy that keeps money and skills local. Another setback for recycling efforts The bill's likely demise marks the government's latest retreat from waste-reduction initiatives. As RNZ's Anneke Smith observes, since the coalition was elected, 'the container-return scheme has been scrapped, plastic bans pared back, and product stewardship rules delayed.' In December, the government also quietly cancelled plans for mandatory kerbside composting and recycling in all urban areas, a move that Wellington City Councillor Iona Pannett said had pulled 'the rug out from under' local waste strategies. The collapse of right to repair now leaves consumers with fewer options for extending the life of their products and adds to New Zealand's already poor record on waste diversion. Davidson insists she will not give up. 'If the government is serious about protecting the rights of consumers, this bill can still be passed,' she says. But unless one of the coalition parties shifts its position, the chances of New Zealand joining the growing global repair movement remain remote. More from The Spinoff
NZ Herald
18 hours ago
- NZ Herald
NZ sharemarket continues momentum as Skellerup posts strong result
'The OCR [Official Cash Rate] decision yesterday, the lower forecast track and the signal of more cuts has put a bit of a rocket under the New Zealand market,' Lister said. 'While the economy isn't as far from firing on all cylinders, businesses are certainly in better spirits than they were. 'The reporting season is pointing to us having stabilised and passed the worst, and you're actually seeing the odd good result come out.' Skellerup's full-year result was followed by a share price rally of 6.38% or 30c to $5.00 after 380,365 shares changed hands on turnover worth $1.899m. The Red Band gumboot maker said it had made $54.5m in profit after tax, with earnings before interest and tax of $78m. Its profit was in line with expectations, falling in the middle of the $52m to $56m range flagged in July. Lister said Skellerup's outlook statement was positive, pointing to an acceleration in revenue over the next one to three years. Auckland International Airport also reported its full-year results, with a 'solid' net profit after tax up 12% to $310.4m. Its share price fell 0.64% or 5c to $7.75 on turnover worth $11.7m. Lister said the result was nothing of concern, but also nothing to get excited about. 'The result was largely in line with expectations, no real surprises. The outlook was maybe a little on the cautious side to 2026. 'Guided to net profit after tax [npat] of $300m, give or take, I think markets we're expecting north of $300m. They might still actually do better than they're suggesting, but [it is] just a bit of a cautious commentary.' The market's biggest stock, Fisher & Paykel Healthcare, also gave guidance on its first half at its annual meeting. The company's outlook for the full year remains unchanged, with operating revenue in the range of about $2.15 billion to $2.25b and net profit in the range of about $390m to $440m. 'They're clearly trading better than where people expected them to be at this point through the year. It wasn't so much the guidance, it was more the 'here's how we've gone so far this financial year' that they looked quite positive.' Fisher & Paykel Healthcare's share price rose 2.12% or 80c to $38.45 on turnover worth $10.8m. US stocks closed mostly lower on Wednesday local time as the tech sector remained under pressure, while investors kept an eye on retail earnings and weighed the prospect of US Federal Reserve interest rate cuts. The broad-based S&P 500 Index slid 0.2% to 6395.78, while the tech-focused Nasdaq Composite Index declined 0.7% to 21,172.86. The Dow Jones Industrial Average was flat at 44,938.31. The tech pullback comes as markets reached a point where many stocks 'were overbought' after soaring to record highs in recent weeks, Tim Urbanowicz of Innovator Capital Management said. 'But we still view the long-term trend [as] intact,' he said. Among major tech companies, Nvidia shares lost 0.1% and Advanced Micro Devices pulled back 0.8%. Broadcom fell 1.3%. – Additional reporting AFP Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.
