ASB Brings Forward RBNZ Rate Cut Forecast to November

ASB is the latest local bank to bring forward its forecast of a Reserve Bank (RBNZ) rate cut to November from its previous pick of February next year.

Easing Inflation Pressures

In its latest report on the financial position of households, ASB said inflation pressures have been easing, with households essentially in ‘hibernation’ as they crimp spending to cope with higher interest rates.

Conditions for Rate Cuts

Senior economist Mark Smith said the conditions for rate cuts were becoming more apparent.

“Economy wide inflation pressures should continue to cool, enabling the RBNZ to provide interest rate relief to beleaguered households.”

Growing Likelihood of OCR Cut

Smith noted that the chance of an OCR cut in 2024 is growing, which should help support consumer sentiment and overall household spending.

Smith expected the RBNZ to stick to its approach of wanting full confidence that inflation was headed back to its 1-3 percent target zone, but said that should come soon.

“To all intents and purposes the Reserve Bank’s job is done, but we think they will be cautious and hold off cutting until they’re confident inflation’s on the track.”

Monitoring the Labour Market

He said the RBNZ would be watching the labour market like a hawk to see a further slowing in wage pressures and slack in the jobs market.

The central bank would also want to see inflation numbers due out in October, which would allow for a November cut.

RBNZ’s “Least Regrets” Policy

Smith said the RBNZ had a “least regrets” policy, where it balanced the risks of doing too much or too little.

“To date the biggest room for regret has been of cutting the OCR too soon and finding that the decline in inflation stalls or even reverses.”

“Now the biggest risk of regret is in our view rapidly tilting to the risk of holding monetary policy too tight for too long, unnecessarily damaging the economy and people’s employment prospects.”

Impact on Households

Smith said households would get a short-term confidence boost, if nothing else, from a rate cut, although finances might not benefit immediately, and a tougher jobs market could present real challenges to some highly indebted households.

Support from Other Banks

Kiwibank has been a vocal supporter of rate cuts in November, warning that to keep rates higher for longer risks “scarring” the economy, while the BNZ has said a cut before the end of the year was plausible, but a February move was more likely.