Photo: RNZ
- Reserve Bank to deliver a 25 basis point cut to 2.25 percent
- Attention on how wide the RBNZ leaves the door open for more if needed
- Economy performing largely as forecast in August
- Last appearance of short term governor Christian Hawkesby
- New governor Anna Bremen starts on 1 December
The Reserve Bank is set to deliver a 25-basis-point cut to the official cash rate (OCR) to a three-year low, but attention will be on the central bank's commentary and forecasts and how wide it leaves the door open for a further rate cut next year if needed.
The RBNZ has taken barely a year to cut the OCR from 5.5 percent to 2.5 percent, as it has tried to stimulate an economy going backwards while looking to control a revival of inflation pressures, which have edged to the top of the RBNZ's 1-3 percent target band.
So is it one more cut and then an end to the easing cycle - the so-called 'one and done' strategy?
"Our base case is that November will bring the last OCR cut, but the risk remains for further easing in 2026," ASB chief economist Nick Tuffley said.
"The statement's forecasts and commentary will leave the door wide open for further easing if it is needed. Doing so will keep a lid on wholesale interest rates."
Tuffley said such an approach would give the RBNZ breathing space to assess the state of the economy, and the strength of emerging signs of growth.
To an extent the RBNZ has boxed itself into a rate cut this week after saying in its October statement it was open to further cuts "as required for inflation to settle sustainably near the 2 percent target mid-point-in the medium term".
Turning the economic corner
Partial indicators over the past two months have pointed to the economy turning the corner after it effectively stalled in the first half of the year.
BNZ head of research Stephen Toplis said a key question was how much slack - the output gap - was in the economy.
"Where it gets interesting is what does the RBNZ think is happening to potential growth?
"Net migration is coming in lower than the bank had assumed. Coupled with anecdotal evidence of increasing job shortages, this suggests that potential growth might need revising down again."
Current picks for growth in the three months ended September range between 0.3 percent and 0.6 percent.
The slack in the economy is one factor expected to keep downward pressure on inflation.
HSBC chief economist for Australia and New Zealand Paul Bloxham said there were modest signs of an uptick in growth.
"Timely indicators of the manufacturing sector have risen for the past four months, and business sentiment has improved. Electronic card spending figures, building consents, and hours worked have all risen recently."
He expected the RBNZ monetary policy committee to take a "dovish" tone in its statement with a clear signal that a further cut is on the cards.
The degree of dovishness will show through in its OCR rate track, which the RBNZ has said is only a signal of where the rate might be in coming meetings.
New year, new governor
The coming decision will be the last for governor Christian Hawkesby, who was rushed into the job after the abrupt and messy departure of Adrian Orr, added to by the departure of the chair of the RBNZ board, Neil Quigley.
Hawkesby was a candidate for the permanent appointment, losing out to Anna Bremen from the Swedish central bank who starts on 1 December.
It is expected in time he will return to private investment markets.
Bremen made much in her appointment news conference about the transparency of decision making.
"Will things at the RBNZ ever be the same again? A new governor starts next month who is likely to bring about a greater focus on transparency of the decisions made by the Monetary Policy Committee. We'll see in February - OCR cut or not, " Tuffley said.
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