RBNZ Set to Hold Rates Again This Week, but Will the Next Move Be a Cut?

However, some believe a case is building for cuts to be made as early as next year, as the economic data coming in seems to support the idea that the economy is now cooling at a reasonable pace.

The RBNZ will also release a new quarterly Monetary Policy Statement on Wednesday, coinciding with the OCR decision. The projections included in the new statement will be critically important, especially going into a three month break over the summer.

The Bank suggested in its previous guidance released in August, that it doesn’t anticipate any interest rate cuts to occur until the second quarter of 2025, but what will they have to say this time around? Is there a possibility that the timeframe will need to be modified, and the first OCR cut will need to be moved forward?

Below we take a look at the previous meeting minutes, what the newest data says, and what the experts think ahead of this week’s decision and the outlook.

What Happened Last Month?

As predicted, the RBNZ board opted to maintain the OCR at 5.5% during its October monetary policy meeting.

According to the minutes, committee members agreed that current interest rates were appropriately limiting economic activity and lowering inflationary pressure. They also suggested that the sluggishness in demand growth was continuing. GDP growth in the second quarter of the year was better than expected, although growth expectations were still low.

At the time, the board expected that further slowing of expenditure growth was anticipated as a result of the continued tightening of monetary policy. They acknowledged that there is a danger that activity and inflation may not moderate enough in the near future, and If the global economy continues to decline, especially in China, commodity prices and New Zealand’s export earnings might suffer.

To keep annual consumer price inflation within the 1% to 3% target range and to promote maximum sustainable employment, the committee agreed that the cash rate needed to stay at a restrictive level for the time being.

The Economic Situation in the Country Now

New Zealand’s annual inflation rate decreased to 5.6% in the third quarter ending in September this year, from 6% in the previous quarter, the lowest quarterly total since the second quarter of 2021 and a reasonable fall from the 7.3% high recorded mid-last year.

While the rate continues to slowly decline, it’s fair to say that the RBNZ will want it to fall much closer to the target range of 1% to 3%, and to be sure that it stays there before considering any rate cuts. The rate of Food inflation, which was recorded more recently for October, dropped to 6.3% from 8% a month earlier, having reached a record high of 12.5% in June.

Meanwhile, the labour market appears to be cooling too.

Employment across the country fell by 0.2% in the quarter to September, after a 1% increase in the previous quarter. The unemployment rate also increased to 3.9% in the same period, the highest level since the June quarter of 2021, compared to 3.6% the previous quarter.

Also, continuing its declining trend of the previous three quarters, retail sales in New Zealand fell 3.40% in the third quarter of 2023 compared to the same period last year. Retailers hoping for stronger trade going into the holiday season may be wise not to hold their breath, but it will be interesting to see how consumers will behave in the lead up to Christmas.

What To Expect From This Monetary Policy Meeting?

The meeting concludes on Wednesday, November 29th, with the Decision Statement due to be released at 1:00 AM GMT, and a Press Conference is also scheduled for 2:00 AM GMT.

The ANZ Bank expects the most recent economic data points to a hold in rates this week. Their economists suggested the RBNZ Monetary Policy Committee may reduce the OCR track back to 5.5% and/or even accelerate cuts forward if they take a more dovish view of the new data. Should they be overly cautious, they might decide to raise the track, indicating a 50/50 chance of another hike and/or staying high for an extended period of time.

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