The Reserve Bank of New Zealand (RBNZ) is widely anticipated to reduce interest rates this week, although economists are split regarding the extent of the monetary easing required to stimulate the country’s sluggish economy. The central bank’s Monetary Policy Committee is scheduled to announce its decision in Wellington on Wednesday.
A Bloomberg survey reveals that 15 out of 25 economists predict a 25-basis-point cut to the Official Cash Rate, bringing it down to 2.75 per cent. The remaining economists forecast a more substantial 50-basis-point reduction, setting the rate at 2.5 per cent. These expectations for more aggressive easing followed the release of figures showing a 0.9 per cent contraction in gross domestic product during the second quarter, a figure three times worse than the RBNZ’s own projections.
Despite the unexpectedly poor GDP data, some analysts believe policymakers may refrain from an overreaction, as the economy is projected to rebound in the latter half of the year. “There is a very real risk that the bank was spooked by the weak GDP figures and cuts 50 points,” noted Doug Steel, senior economist at Bank of New Zealand in Wellington. However, his central expectation is for a 25-point cut accompanied by a clear easing bias.
The RBNZ is set to release its decision at 2pm local time on Wednesday. As this is a rate review, not a Monetary Policy Statement, no press conference will be held, and the bank will not be updating its economic forecasts.
