Ready for OCR cuts? Today’s the day

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Ready for rate cuts

Today we get one of the most highly anticipated Official Cash Rate calls in years. At 2pm the RBNZ will release its October Monetary Policy Review (MPR) and there’ll be no shortage of homeowners and business people hoping for significant relief.

The MPR is different to the full Monetary Policy Statement we got in August. It means we’ll just get a one-page release with no press conference and no fresh forecasts. But you can still bet that every word of the release will be pored over for clues to the outlook.

A 25 basis point rate cut is almost certainly baked in. But will Governor Adrian Orr and the monetary policy committee double down and deliver 50 basis points?

The local bank economists have all picked that he will, but they’ve all added that it is a close call. So it’s far from a done deal.

In the end, it will come down to an RBNZ judgment on just how grim the economy really is right now. Some commentators - like Greg Smith from Devon Funds Management - have even suggested that a 75 basis point cut might be warranted.

That seems unlikely, as it would send panic signals to the market. The RBNZ gets another shot in November with a full Monetary Policy Statement and if it cuts by 50 bps then as well, that would send us into the new year with an OCR at 4.25%.

Discover more

• High hopes RBNZ will double-down with 50 basis point cut
• Kiwibank makes lending rate cut ahead of OCR decision
• Reserve Bank keeps OCR on hold but expectations rise
• OCR explained: What can we expect, and what does it mean for you?

Economists are picking the rate will fall further next year, so there is more relief on the way. ASB expects the OCR will be down to 4% by February 2025 and will reach a terminal rate of 3.25% from around mid-2025.

KiwiBank economists say market traders are putting “odds-on” bets of 50 bps cuts all the way through until February.

“The cash rate is priced to hit 3% by August next year, with a terminal rate around 2.5%, in line with our forecast,” they said.

So there is no question relief is on its way ... it’s just a question of how fast.

Check-in on the nzherald.co.nz site at 2pm for the decision and analysis.

How worried should we be?

That’s my favourite question about the economy. It’s more of a prelude to a range of questions, but it draws on the seemingly endless well of pessimism that economics inspires.

If things are going well, we can worry that the only way from here is down. If things are going badly, we can worry about our capacity to cope with any more bad news.

Remarkably, things are going pretty well for the global economy right now. There is a chance that this optimism will flow through to New Zealand as interest rates start to fall.

As discussed last week, the US economy is on a roll - its annual economic growth rate has recovered to 3% and at the weekend we saw its latest job creation data (the quirkily named non-farm payrolls) showed a big surprise on the upside.

It looks like the US will avoid recession, giving the US Federal Reserve breathing space to cut rates in a measured fashion.

This comes alongside a struggling Chinese economy that has already boosted iron ore prices, which will give Australia’s economy a shot in the arm. Hopefully, the stimulus will lift Chinese consumer sentiment too, which could boost prices for dairy and our other food exports like meat, wine and fruit. We might even see a much-needed lift in the number of Chinese tourists to New Zealand.

So what, if anything, could derail this positive economic outlook?

What you're missing

This is a subscriber-only newsletter, usually available only to those with a Herald Premium account. Thanks to our partners at LinkedIn News Australia you've been given more of a taste of it.

Here's what's covered in the full edition:

• Middle East troubles and oil price shocks
• AI bubbles and a market crash
• US election mayhem
• Hard or soft(ish) landing - what do business leaders think?

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