We have revised down our interest rate forecasts, and we now expect the RBNZ to cut the cash rate by 100bp at the March Monetary Policy Statement.
After the January OCR review we noted: “we think that 50bp is in the bag for the March MPS, and any further bad news on the global economy will increase the odds of a larger move.” The most recent developments have certainly fit the bill.
Around the world, GDP figures for Q4 2008 are shaping up to be absolute shockers, and more recent data on manufacturing and international trade indicate that the slide has continued into the early part of this year. Despite the latest efforts by the US to devote trillions of dollars towards stimulating the economy and repairing the financial system, markets remain unconvinced that this will be enough. RBNZ Governor Bollard returned from a roadshow of the major global financial centres earlier this month, and his comments suggest that what he saw there left a deeply negative impression.
The deterioration is best captured by the latest Consensus Forecasts, which are the RBNZ’s preferred source of world growth forecasts. New Zealand’s major trading partners are now expected to contract by 0.9% this year, compared to the 0.1% drop forecast last month, and the 1.3% growth that was predicted ahead of the December MPS. The largest downgrades were for Australia and Asia, where forecasters had until recently held out hope that these regions could resist the worst of the downturn.
