Pause now, cut later? Inflation uncertainty likely to guide OCR decision
Economists caution that a rate cut may be warranted — but the Monetary Policy Committee is likely to wait for clearer inflation signals before it makes a move.
ANZ chief economist Sharon Zollner said the bank should cut rates this week based on the data but she believed the committee would decide to wait for more data on inflation before making its next move.
"The decision is far from simple and, at 20%, we think the market is very much underestimating the chance of a cut."
Zollner said the "fly in the ointment" was lingering concern that inflation could be more persistent than forecast.
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ANZ was forecasting three more 25bp cuts — starting in August and continuing in November and February —bringing the OCR down to 2.50%. However, Zollner noted the February cut was less certain.
"We don't have sufficient confidence that 'she'll be right' to take that cut out of our forecasts at this juncture, but we freely describe it as pencilled in."
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ASB chief economist Nick Tuffley said the bank thought the Reserve Bank would hold the OCR following six consecutive cuts.
"With the OCR near estimates of neutral levels and with inflation towards the top of the 1-3% inflation target, the threshold to delivering further OCR cuts has likely risen."
The short-term inflation spike looked higher than forecast, and Tuffley said the central bank would need to be confident that this did not risk stoking inflation expectations.
"Everchanging global and geopolitical developments complicate disentangling its impacts on the New Zealand economy. Because of this, there are a variety of monetary policy paths over 2025 that are conceivable to us."
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Tuffley said he believed a "cautious, data and event dependent" Reserve Bank would move the OCR to 3.0% by August.
Infometrics principal economist Brad Olsen also supported a hold, saying a rate cut was likely later in the year but that now was not the time to move.
"We think that this is the time to take a bit of a pause. There's just a lot of uncertainty out there in the economy."
Olsen said food and energy prices continued to weigh heavily on household budgets and that current inflation pressures were "uncomfortable and very real".
He expected only one cut this year, taking the OCR to 3.0%, but said global volatility could shift the timing.
"The wild card at the moment is what the US does with its tariffs."
The Reserve Bank would be releasing its latest review of the official cash rate at 2pm.
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