Westpac Institutional Bank Team
Westpac Institutional Bank

Waiting is the hardest part

ANALYSIS | 02/09/2016 07:26:19 GMT

We’ve been forecasting the need for the OCR to fall below 2.5% for some time, and persistent softness in inflation has reinforced this case. However, while it’s clear the OCR will need to go lower, the timing of cuts is less certain. Following a week of big developments, including an update on the RBNZ’s thinking on the economy, we have shifted back to expecting cuts in June and August.

Back in July 2015, we argued that the OCR would need to drop to a record low of 2%. That reflected our assessment that inflation wasn’t on track to meet the RBNZ’s medium term target. Events over the past few weeks, particular the ongoing weakness in inflation and signs of continuing softness in the global economy, have really rammed home why such cuts are necessary.

But while the need for OCR cuts is abundantly clear, the timing of when those cuts will occur has always been much less certain.

Just last week we tentatively suggested that cuts might begin in March. That followed the softer than expected December quarter CPI result, and the RBNZ’s January policy statement which saw them adopting an explicit easing bias.

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