Countering that view are the risks of rising inflation, which is nearing the top of the RBNZ’s target band at 2.7%.
The Reserve Bank now has a single mandate to focus solely on inflation targeting.
ANZ chief economist Sharon Zollner and her team are still picking a 25-basis-point (bps) cut.
“We think the deciding factor will be strategy. A 25-basis-point cut with plenty of dovish messaging around it reduces the risk of needing to change direction abruptly down the track, and it leaves maximum options open.”
The trade-off against a deeper cut – that monetary conditions would not be quite so easy over the next six weeks – would likely be judged acceptable, she said.
Westpac economists argue the RBNZ shouldn’t wait and are picking 50 basis points.
“In our view, there doesn’t seem to be a good reason to delay a move to 2.5%,” Westpac chief economist Kelly Eckhold said.
“Quickly moving the OCR to a stimulatory level will boost confidence and activity before the important Christmas and summer trading period.”
It would also reduce the likelihood that even further monetary policy support is required in the new year, he said.
The Kiwibank economics team suggested the RBNZ should cut by 50 basis points and also signal another 25-point cut in November.
Anything less would see interest rates head higher, given it would disappoint markets, they said.
“Unhelpful. And the opposite of what the economy needs.”
The current cash rate of 3% was not stimulatory, and was not encouraging excessive behaviour or inflation, they said.
Kiwibank sees a 50% chance that another 25bps cut will be needed in February, taking the OCR to 2%.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
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