We think the bar is high for a 75bps OCR cut given the prevailing economic backdrop. Inflation in New Zealand is back within the target band, driven by disinflation in tradables. But non-tradables inflation remains stubbornly high; housing and insurance among the sticky components. NZD to underperform on rising odds of a Trump-Republican sweep and dovish RBNZ expectations, Standard Chartered’s economists Bader Al Sarraf and Nicholas Chia note.
Softening inflation, hard decisions
“Inflation, at 2.2% y/y in Q3-2024 (3.3% in Q2) – a touch softer than the Reserve Bank of New Zealand’s (RBNZ’s) 2.3% forecast – is back within the central bank’s 1-3% target band. This has led markets to anticipate more aggressive rate cuts, with latest market pricing indicating c.57bps of easing at the 27 November; this equates to around a 30% implied probability of a 75bps cut.”
“Historically, the RBNZ has tended to favour larger official cash rate (OCR) adjustments during periods of significant market shocks and economic surprises (Figure 1). During past crises, such as the Global Financial Crisis and the COVID-19 pandemic, the RBNZ responded with outsized OCR cuts of up to 150bps. Conversely, the Q3-2022 CPI that printed 0.8ppt above RBNZ forecasts led to a 75bps hike.”
“We do not think that the prevailing growth and inflation backdrop necessitates an outsized policy rate cut. While a 75bps cut cannot be ruled out at the November meeting, we think the bar for such a move is high, and we maintain our call for a 50bps cut. We expect the RBNZ to tread cautiously at this stage when contemplating further rate cuts, balancing the risks of an unintended boost to the housing market and NZD instability – both of which are key factors influencing the transmission of monetary policy to CPI inflation.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD consolidates near two-week high, looks to US NFP for fresh impetus
AUD/USD holds steady around the 0.6335 area during the Asian session on Friday as traders now await the US NFP report. Bets that the Fed will cut rates further amid concerns over failing US economic growth keep the USD depressed near a multi-month low and act as a tailwind for spot prices, though tariff jitters warrant caution for bulls.
USD/JPY seems vulnerable amid divergent Fed-BoJ expectations; US NFP awaited
USD/JPY languishes near its lowest level since October touched on Thursday amid a bearish USD, led by bets that the Fed could cut rates multiple times in 2025 amid slowing US economic growth. Moreover, the hawkish sentiment surrounding the BoJ's policy outlook underpins the JPY and validates the negative bias for the pair.
Gold price remains depressed ahead of US NFP; trade jitters to limit losses
Gold price trades with negative bias for the second straight day, though a combination of factors continues to act as a tailwind ahead of the crucial US NFP report later this Friday. Rising trade tensions continue to weigh on investors' sentiment.
XRP investors enlarge realized profits to $2 billion despite potential inclusion in US crypto reserve
Ripple's XRP managed to record gains on Thursday despite investors expanding their total realized profits to about $2 billion since the beginning of the week.
Make Europe great again? Germany’s fiscal shift is redefining the European investment playbook
For years, Europe has been synonymous with slow growth, fiscal austerity, and an overreliance on monetary policy to keep its economic engine running. But a major shift is now underway. Germany, long the poster child of fiscal discipline, is cracking open the purse strings, and the ripple effects could be huge.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.