50-point OCR cut gets green light

Economy / news

Economists see latest NZIER Quarterly Survey of Business Opinion as clearing the way for a further substantial cut to the Official Cash Rate next month

15th Jan 25, 9:34am by David Hargreaves

Source: 123rf.com

Economists at the country's big banks see the latest NZIER Quarterly Survey of Business Opinion as providing a green light for a 50-point cut to the Official Cash Rate next month.

After the Reserve Bank (RBNZ) cut the OCR from 4.75% to 4.25% at the end of November, RBNZ Governor Adrian Orr gave surprisingly explicit indications that another 50 point cut would follow at the next review on February 19 this year, saying the central bank's forecasts were "consistent" with another 50 point cut in February, which would take the OCR to 3.75%.

However, there's a considerable amount of data to be released between now and February 19 that could yet have an influence, including December quarter inflation figures coming out on January 22.

The NZIER's QSBO survey is the longest running such survey - having been started in 1961 - and it is closely watched by the markets and indeed by the RBNZ itself. So, the latest QSBO, released on Tuesday, was keenly anticipated.

And the big bank economists say there's nothing in the latest survey to cause the RBNZ great concern.

Kiwibank senior economist Mary Jo Vergara and economist Sabrina Delgado said the NZIER survey results had confirmed the continued easing in inflation pressures. Fewer firms reported higher costs over the last quarter, and the share of firms that raised their prices also remains historically low.

"The weak demand environment continues to reduce capacity pressures. And that’s good news for tackling (homegrown) inflation. More firms are reporting the ease in finding labour. And now, the lack of sales is the main constraint on business," they said.

"The outlook has improved. But the here and now demands further rate relief from the RBNZ. We continue to expect a 50bp cut from the RBNZ in February.

"The lift in business confidence is underpinned by the expectation of more rate cuts. The RBNZ must deliver," Vergara and Delgado said.

ANZ senior economist Miles Workman said the NZIER survey data showed that the RBNZ's previous monetary tightening "has engineered a significant degree of spare capacity in the economy" and that this is working to contain inflation pressures.

"And while the recovery in activity appears to be under way, these [survey] data aren’t exactly suggesting the economy is about to go gangbusters," Workman said.

"For the RBNZ, rebounding activity expectations from such a weak base isn’t likely to derail OCR cuts provided indicators of spare capacity and price setting evolve as required.

"On that front, there isn’t much in [the] data to suggest the RBNZ’s policy stance isn’t delivering the results they’re after. We continue to pencil in a 50bp cut in February," he said.

ASB senior economist Mark Smith said the pricing and capacity metrics from the NZIER survey remain consistent with annual CPI inflation falling below 2% over the next few quarters.

"Of note, spare labour market capacity continues to point to the likelihood of core inflation falling below the inflation target midpoint. This will concern the RBNZ and still suggests that a swift pace of OCR cuts is still needed," Smith said

"The OCR at 4.25% is well above neutral setting (likely to be in a 3-3.5% range), so monetary policy is still acting to slow the economy and further dampen inflation. OCR cuts still look to be needed, and we expect a 50bp February OCR cut (3.75%) followed by 25bp cuts in April and May (3.25% OCR).

"The issue is whether the RBNZ will need to push the OCR lower than this to prevent the prolonged economic slump continuing, delivering collateral damage to the labour market and wider economy.

"Our base case is that the OCR will not need to move below 3.25%, but whether they will have to put the foot on the policy accelerator (rather than brake) to support the economy remains to be seen," Smith said.

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132 Comments

by kraken | 15th Jan 25, 9:51am 1736887907

Business confidence pointing to a strong economy implies there’s room for rates to rise, not fall. However, our current confidence relies heavily on easy credit and mounting debt, which isn’t sustainable. The RBNZ will ultimately face a tough choice, protect the NZD or the housing market.

Looking forward to seeing those inflation figures on Jan 22.

by M0ralHazard | 15th Jan 25, 10:05am 1736888736

"Business confidence pointing to a strong economy"

I am not sure that is how I would read the Quarterly Survey of Business Opinion.

by observer | 15th Jan 25, 10:50am 1736891429

I agree.

The results suggest that businesses believe it must get better some time soon-ish.

by meh | 15th Jan 25, 2:33pm 1736904791

"The lift in business confidence is underpinned by the expectation of more rate cuts. The RBNZ must deliver,"

They are relying on easier credit though. Confidence drops if the economy doesn't get the rate cut? It's not sustainable.

Cutting rates further just says The Market isn't adapting. Unfortunately it's the wrong end of the market getting hammered.

by RookieInvestor | 15th Jan 25, 10:12am 1736889160

implies there’s room for rates to rise, not fall

You think our economy is not struggling enough?

by kraken | 15th Jan 25, 10:19am 1736889541

Our economy is struggling, but it's propped up by easy credit. A healthy economy can withstand higher rates. What we need is a "winter" to weed out bad investments. Instead, we've been living in an endless "summer" for decades. We haven't seen a true recession since 1990.

by RookieInvestor | 15th Jan 25, 10:42am 1736890976

So the last 2 years have been part of that endless summer?

by safeashouses | 15th Jan 25, 10:49am 1736891345

_{@Rookie - thats funny}

by kraken | 15th Jan 25, 11:25am 1736893500

You haven’t realised yet that the RBNZ doesn’t control the cost of money. The RBNZ’s OCR follows the 2-year. As long as inflation persists, the bond market will demand higher returns. If inflation returns, you might find yourself having a religious experience. You better get on your knees and pray inflation drops back to 2% globally, or central banks will end QT and go back to QE.

by kraken | 15th Jan 25, 11:39am 1736894371

The United States has experienced a boom over the past 2 years. New Zealand is a small economy, and whether we're in a recession is barely a concern for the rest of the world. The RBNZ currently lacks the tools to improve our economy in this inflationary environment and is at the mercy of a strong USD and higher US Treasury yields. It’s the Fed and the bond market that control the cost of money, and they prioritise their own interests first.

by WestieAJ | 15th Jan 25, 12:02pm 1736895760

If you are an existing U.S. homeowner with a 30 year fixed rate mortgage at 2.5% ( your largest monthly expense is fixed) and your pay has still been going up every year for the past 3 years with inflation. You probably feel pretty good about your situation.

by Let me be Frank | 15th Jan 25, 10:55am 1736891710

"We haven't seen a true recession since 1990."

That is close enough, but that 90s recession didnt result in us addressing the economic output, rather it drove us to propping up the economy with that easy credit....why will this time be any different?

We are not prepared to accept the changes required nor the timeframe involved.

Maybe this time will be different due to lack of choice, but I wouldnt be confident they wont try.

by WestieAJ | 15th Jan 25, 11:45am 1736894757

The introduction of the Employment Contracts Act exaggerated the early 1990s recession, when we were already experiencing rising unemployment.

Tens of thousands of people had their pay and conditions unilaterally reduced and pretty much had to take it or leave it.

by Albert Grogan III | 16th Jan 25, 11:12am 1736979156

Irrelevant. Good workers get paid well. End of story. If you are replaceable retrain into a job that creates value to your employer. Employers should not be held to ransom, they have to grow in order to create more jobs. Socialist ideals have never worked anywhere in the world.

by ChrisOfNoFame | 16th Jan 25, 12:34pm 1736984081

"Socialist ideals have never worked anywhere in the world. "

Did you mean 'Communist'? If not, total bollocks.

by meh | 16th Jan 25, 2:32pm 1736991134

What are "communist" ideals?

by ChrisOfNoFame | 16th Jan 25, 2:53pm 1736992396

My bad. ... Would 'Centrally Planned' be better?

by streetwise | 15th Jan 25, 12:21pm 1736896897

Was there a recession in1990? I must have blinked.

And somebody said there was a recession called the GFC.....I never knew......perhaps I was having a nap.

But I do know that during the Korean war, circa 1952, our inflation reached 11% and during the 1970s there was not one but two "oil shocks" during which our inflation was 12%.

It seems to me from simple observation that most inflation shocks are more likely to be caused by geopolitical events including our current one; it's proximate cause can be solely attributable to either poor Chinese public health regulations or the careless leak of the Covid virus from a biological laboratory.

Germany's uncontrollable sky-high inflation in the 1920s was the result of losing WW1 and subsequently led to WW2.

by Here.for.the.c… | 15th Jan 25, 12:49pm 1736898588

What we need is a "winter" to weed out bad investments

could you please expand on how weeding out bad investments helps the economy? Doesn't that just mean more unemployment and investors losing their capital?

by interesting1234 | 15th Jan 25, 3:56pm 1736909807

If Joe blogs makes a bad investment, they do so knowing the risk. The risk bein they lose their money, possibly having outstanding debt liabilities afterwards to pay down. If there is large scale investment in say, housing as one example, and the council buy out people's sections who had no insurance in an act of god, then the likes of insurance companies will take more risks knowing they can socialise the losses to the public, and the wheel keeps turning. People seem to be immune to the thought that they could lose a LOT if they fail in a larger investment, a.k.a the Too-Big-To-Fail mentality brought into the mainstream after the GFC bailouts.

by JimboJones | 15th Jan 25, 1:10pm 1736899850

"A healthy economy can withstand higher rates" - The OCR increased by a factor of 22 in a short timeframe (from 0.25 to 5.5). I'd say our economy must have been very healthy to withstand that at all.

by Albert Grogan III | 16th Jan 25, 11:09am 1736978999

Our economic growth (sales) is terrible. Labour persecuted our businesses and acted like a hostile country forcing extreme economic pressures across the board. Our currency continues to devalue. Debt to gdp now 39%. It’s a basket case.

by ChrisOfNoFame | 16th Jan 25, 12:36pm 1736984200

"Our economic growth (sales) is terrible."

Oh, I don't know ... We're pretty damn good at selling houses to each other. And those 'sales' are real. (At least according to GDP figures anyway.)

by Albert Grogan III | 16th Jan 25, 11:07am 1736978839

Idiocy. What the economy needs is consistency not ‘weeding out’ only a socialist would suggest damaging the economy as being good. Money should be cheap, it creates jobs and investment. Go create harm in an overseas economy or leave NZ.

by Let me be Frank | 16th Jan 25, 11:21am 1736979680

"Money should be cheap, it creates jobs and investment."

And yet we live with the evidence it does not.

'Money' should be widely dispersed and active...not held by a (decreasing) cohort to extract rent from the (increasing) others.

by linklater01 | 17th Jan 25, 9:15am 1737058542

Albert G,

Money should be cheap, it creates jobs and investment. Perhaps some evidence of that would be good. Here, we have the evidence that it creates an unhealthy bull market in property. NZ already has one of the most unaffordable house markets globally. I invite you to study the Demographia Annual Housing Affordability Study. The last thing we need is for that to become worse.

by Whatwillhappen | 15th Jan 25, 10:19am 1736889554

It's interesting that bank economists are taking positions on the OCR review that don't take into account international developments. I've stopped trusting bank economists, because they have few incentives to paint an unbiased picture. The NZD is more important than the housing market.

by kraken | 15th Jan 25, 10:26am 1736889990

Commercial bank economists are making forecasts to attract customers.

by Yvil | 15th Jan 25, 10:34am 1736890450

"The NZD is more important than the housing market."

The OCR setting is neither about the NZD nor about the housing market. It's about the fact that the current OCR is at a restrictive level which the NZ economy struggles to cope with. The NZD and housing market may be affected by lowering the OCR, but they are not the RBNZ's main concern.

Understand this folks, and your predictions of where the OCR is going will improve significantly.

by kraken | 15th Jan 25, 11:01am 1736892110

The neutral rate, or terminal rate, will depend on inflation. A weak NZD presents inflation risks, so the neutral rate could be raised if inflation returns.

Inflation is the primary goal, with unemployment and a struggling economy being secondary.

by Yvil | 15th Jan 25, 11:08am 1736892480

I respectfully disagree. The neutral OCR rate is defined as a rate which does neither stimulate, nor slow down the NZ ECONOMY. Inflation, exchange rate, unemployment, housing etc… may be affected by where the neutral OCR rate is at, but they are not the setting elements for the neutral rate.

When people understand this, it becomes easier to predict where the OCR is going.

by kraken | 15th Jan 25, 11:46am 1736894801

The RBNZ, like the Fed, doesn’t know where the neutral rate is. It’s data-dependent on inflation, unemployment, exchange rates, housing, and other metrics, and it will change over time.

by Independent_Observer | 15th Jan 25, 11:56am 1736895404

Yeah I agree and have had this discussion with Chris of no fame. I personally think the neutral rate is a bs fallacy.

Why do we never seem to be at the neutral rate but always trying to get to it? Then when we get to it, we find that it is no longer the neutral level at that level no longer balances the economy? Imagine the amount of money we probably spend on PhDs at RBNZ to try and work out what the neutral rate is, then spend years trying to drop or raise rates to try to get to that level, only to get there then some external event occurs and find that all of that work was a complete waste as the economy has changed and a whole new round of research is required to work out what the new neutral rate should be as we raise or drop rates in an emergency to balance the economy in the new conditions and paradigm of economy players/market sentiment. RBNZ economists trying to work out neutral rate = cat chasing own tail.

by JimboJones | 15th Jan 25, 1:24pm 1736900657

That may be true, but they do need some idea of what speed to run at to keep inflation in check. The neutral rate will change over time as conditions change, but that doesn't make it useless.

by Independent_Observer | 15th Jan 25, 3:25pm 1736907913

You could probably fire 50 people from the RBNZ getting paid 6 figure salaries and just do a guesstimate on where it needs to be and be just as accurate as 50 PhDs working in the same problem.

Save the tax payer millions and end up with the same economic outcomes.

by meh | 15th Jan 25, 3:53pm 1736909639

Of course it's another BS fallacy. It's a new jargon only being spoken in very recent times. Once upon a time the OCR was closely tracked to the direction of the 90 day rate. But it's always been about stabilising inflation at a "neutral" concocted rate.

Once the economy depended on credit creation, and houses became the next established investment class affecting financial stability, it's become more about sustaining the FIRE industry. But they won't tell you that.

Bank economists only want to sell more "money" and will say anything to get the people salivating over lower rates.

by interesting1234 | 15th Jan 25, 4:08pm 1736910484

Why do we never seem to be at the neutral rate but always trying to get to it? Then when we get to it, we find that it is no longer the neutral level at that level no longer balances the economy?

Because as we know, our economy is highly dependent on exports, credit creation for housing, as well as the inflow of foreign capital which links to our currency valuation relative to the USD. We are tinkering with our own numbers to try and balance the external forces (e.g price of oil) driving our behaviour and overall sentiment. The OCR is an outdated tool needing review as it's effectiveness in todays world has already been seen to be flawed. Sadly what i see is that the views of the post WWII generation still are beholden to society and need to be updated. The OCR was effective wen a larger percentage of the population held mortgages such as in the mid 1990's, this is not the same as today.

by Escander | 16th Jan 25, 2:38pm 1736991499

Or, its a function of a debt based monetary system that requires inflation(but not too much!) and cannot stand deflation so requires constant tinkering. That's why we need to find things to invest in (Like houses) to try and preserve our wealth from being inflated away. On a hard monetary standard you could jus save and not have to find ways to beat inflation to stop going backwards.

by HouseMouse | 15th Jan 25, 12:16pm 1736896611

So bank economists are saying the neutral rate is 3.25/3.50%. Surely with such a weak economy we need a stimulatory OCR ie. 3% or less

the bank economists think the weakness will have dissipated by the time the OCR gets to 3.25-3.5%? Fat chance

by interesting1234 | 15th Jan 25, 4:08pm 1736910524

You still listen to bank economists given their record over the last 4 years?

by powerupkiwi | 15th Jan 25, 5:33pm 1736915614

It’s not that weak. Need the headroom in case things really get bad.

by morepork | 15th Jan 25, 4:44pm 1736912690

Let's go straight to the horse's mouth

For working purposes, we define the NRR as the interest rate that would prevail if there were no inflationary or deflationary pressures requiring the central bank to lean in either direction.

https://www.rbnz.govt.nz/-/media/f8acef7c3ad7428e89e43294cdbfd063.ashx

by meh | 16th Jan 25, 12:01am 1736938870

To summarise:

We have a concept of a NRR, but there is no NRR, and we like to waffle and sound academic and intellectual. It justifies our research and output.

by Independent_Observer | 15th Jan 25, 11:38am 1736894304

Not disagreeing with you Yvil nor attacking your position. But in the US (which generally determines interest rate movements as the reserve currency) their current financial conditions are not at all restrictive - they actually need to be tightened.

See this chart:

https://x.com/rbadvisors/status/1877723249091514554?s=46&t=MUwQeKa7MkEJ…

So conditions may not actually be as tight as what people perceive - they may actually have been too loose still with further tightening ahead.

by Independent_Observer | 15th Jan 25, 11:49am 1736894956

Our views align very closely kraken. People should be asking themselves do you think rates will be higher in 3-5 or even 10-15 years time than they are now - I personally think it’s more likely they will be higher than they are now.

Going to get a big mortgage? Then I wouldn’t plan on the costs of the mortgage to fall but to be flat or higher in the future (they may fall in the short term ie 12-18 months but think they could be higher after that - see what the longer term interest rates are telling us - ie they are rising not falling)

Most are paying for a mortgage for 20+ years so I don’t understand the fixation on such short term movements (ie what is going to happen in the next few months) - people end up missing the big for the small - ie you won’t see can’t see the forest for the trees.

The big mindset shift for people now, in my opinion, is that mortgage rates are more likely to be flat or rising over the period of the mortgage rather than continuously falling - which is a completely different mindset to the past 30+ years. A new paradigm is needed but 90% of the population appear to be stuck thinking that the future is going to be a repeat of the past - ie confirmation and recency bias is the controlling force in their analysis. Everyone is still thinking lower rates that fall forever are just around the corner once more - I disagree (but of course could be wrong…unless we go Japanese 1990s style deflation).

by Yvil | 15th Jan 25, 12:05pm 1736895943

Great post IO. There is no doubt that longer rates are significantly up recently. I also agree that, whilst short term rates may drop a little in NZ, it won't be by much. So, yes in the medium term (next 2 years), I agree that rates are likely to be flat or rise. But beyond 2 years, which is difficult to predict, I think rates will sink again. Why ? Because I feel there is too much geo political and economic trouble brewing, and I think the likelihood of a major recession or war is very high.

by Independent_Observer | 15th Jan 25, 3:21pm 1736907709

Yep anything could happen - we are all guessing.

by meh | 16th Jan 25, 8:07pm 1737011273

So you're agreeing with HFL, at least over the medium term?

by interesting1234 | 15th Jan 25, 4:12pm 1736910723

A new paradigm is needed but 90% of the population appear to be stuck thinking that the future is going to be a repeat of the past

Keen observation, and this is the same for political views as they are often generational given parents raise their kids preaching one set of views often. The bigger challenge is how do we get the greater population to understand, and critically analyse the factors you mention so that we can, as a nation, begin thinking of, and voting for, a better solution without this generational recency bias we cling to so dearly.

by DaveB1978 | 15th Jan 25, 1:08pm 1736899714

Confidence that things will improve because rates are falling.

by Gasmanz | 15th Jan 25, 3:48pm 1736909319

Doesn't the RBNZ have $39 billion in foreign currency reserves to intervene when the NZD is in trouble?

New Zealand's official overseas reserves (E1) - Reserve Bank of New Zealand - Te Pūtea Matua

Isn't this one of their "tools" for managing our economic environment too? If the dollar is too low, then you start to import inflation with the goods and services the economy is buying from overseas. With our NZ economy consistently being balance of payments negative, it is just a matter of time before inflation on imported goods and services starts going up and driving the overall inflation up too.

Did the RBNZ's recent big spend up on foreign reserves (total increased by $15 billion from Dec 23 to Dec 24) also in some way create a larger liquidity of NZD in the FX market and drive the NZD value down too? If the RBNZ doesn't intervene on behalf of the NZD value, are they trying to achieve something else by letting it nosedive?

Am I correct in saying this or have I got it all wrong?

by Let me be Frank | 16th Jan 25, 11:31am 1736980273

That 39 billion (if able to be realised at current values) represents less than 2 years trade deficit....not really much of a nest egg all things considered.

by Toye | 15th Jan 25, 10:10am 1736889019

NZ economists look to still have their heads up their collective arses.

No new years resolutions.

Another 7% rise in house prices this year like in 2024 then

/end sarcasm

by Yvil | 15th Jan 25, 10:19am 1736889564

Strange way of admitting that you were wrong.

by Toye | 15th Jan 25, 10:30am 1736890247

We'll find out whether I was 'wrong' when we evaluate interest rate and inflation levels at the end of the year.

by Yvil | 15th Jan 25, 11:01am 1736892081

No, we'll find out if you saying the OCR won't be cut by 0.5% is right or wrong, at the next OCR review. Stop making excuses and trying to push out dates to avoid facing the consequences of your predictions.

by Toye | 15th Jan 25, 11:03am 1736892182

Sorry can you quote me somewhere saying that the OCR definitely won't be cut 50bps at the next meeting or are you busy making straw men?

At best I've said there is a chance of a 25bps cut instead.

This is not even evaluating the fact that a 50bps cut may happen and that it ends up being the wrong decision. The RBNZ has certainly had a lot of practice making incorrect decisions in the past.

by Yvil | 15th Jan 25, 11:09am 1736892587

Yes I can.

by Toye | 15th Jan 25, 2:54pm 1736906076

Still waiting

by RookieInvestor | 15th Jan 25, 11:21am 1736893296

At best I've said there is a chance of a 25bps cut instead.

I didn't take you as a follower of TA.

by kraken | 15th Jan 25, 10:35am 1736890505

Yvil has never seen an economist make a wrong forecast.

by Yvil | 15th Jan 25, 10:24am 1736889898

These economists clearly failed to consult with Interest commenters like NZ Gecko, DGM etc… who are adamant that the RBNZ won't cut by 0.50% in February.

by Averageman | 15th Jan 25, 10:35am 1736890544

Even Tony A is calling less

https://www.oneroof.co.nz/news/tony-alexander-us-punctures-kiwi-hopes-o…

by Yvil | 15th Jan 25, 10:43am 1736891017

Really ? Here is what TA wrote in your liked article:

"But at best the cut will be 0.5% and it may be just 0.25%"

It looks like a bob each way to me.

by interesting1234 | 15th Jan 25, 4:13pm 1736910839

Sounds more like he is predicting a sunrise will occur XD

by Independent_Observer | 15th Jan 25, 12:06pm 1736896002

Is your assumption that the RBNZ always make the right decisions? Or are we playing the game of guessing what wrong decisions the RBNZ are going to make next….then celebrating/showing off about our success rate at how well we can predict how wrong the RBNZ always is? (which appears to be the game you are paying). This game, if this is the game we are playing on this forum, is actually complete madness.

We should have two opinions:

1. What do we think the RBNZ will do.

2. What do we think should be the right decision and justify the reasoning (or do you think the RBNZ are always right?).

At times it is difficult to tell what we are arguing about - if it’s that the RBNZ will probably over do it with rate rises or drops then you’re probably right - if it’s that they will do the right thing to avoid excessive booms and busts, then you could we be wrong and a good thing to argue about.

Looking at the economic data around the globe, I personally wouldn’t be dropping rates at the next meeting, but that doesn’t mean that I don’t think the RBNZ will do exactly that.

by Yvil | 15th Jan 25, 1:24pm 1736900672

It's much simpler. I predicted the RB to cut by 0.5% in Feb, others told me I was wrong. That's all.

by JimboJones | 15th Jan 25, 1:31pm 1736901071

I think you will be right Yvil. But it will probably come with a mention of instability and that future OCR cuts may not be possible etc.

If he doesn't cut by 0.5% after saying he would, interest rates will increase and the economy will go backwards big time. That seems like the bigger risk at this stage.

by Independent_Observer | 15th Jan 25, 3:15pm 1736907347

Well I’m sure your self esteem will remain in tact when the RBNZ cuts by 50bps next month.

If not and you get it wrong the others who told you were going to be wrong will celebrate, your ego will be dented, and you still won’t see how pointless it is to take pride in predicting exact OCR movements at exact points in the future.

by Yvil | 15th Jan 25, 4:11pm 1736910687

"you still won’t see how pointless it is to take pride in predicting exact OCR movements at exact points in the future"

I found it very useful when I was able to predict 14 months ahead of time the first OCR cut to happen in August 2024, and hence fix my mortgage term accordingly. I also found it very beneficial to fix my mortgage for 3 years at 2.89% in 2021, when I again predicted correctly that interest rates were going to rise significantly. I saved $ thousands.

by jbman | 15th Jan 25, 10:20am 1736889616

The outlook has improved. But the here and now demands further rate relief from the RBNZ. We continue to expect a 50bp cut from the RBNZ in February.

How's the audacity? That's not a forecast, it's bordering on a threat.

by Averageman | 15th Jan 25, 10:28am 1736890117

If they are going to drop rates they need reduce the DTI ratio, otherwise its off to the races again with fueling the "Speculative Borrowing Phase" and avoiding reality taking place. The only winner being the Bank shareholders.

by ChrisOfNoFame | 16th Jan 25, 10:18am 1736975883

It appears to me the "Speculative Borrowing Phase" has already started. For evidence, see latest mortgage breakdown between 'investors' and owner occupiers. The RBNZ needs to tweak the DTIs & LVRs lower for 'investors' pronto. (They almost certainly won't as the NACTF need to re-instate 'winnings' for their supporters which in turn pumps more unproductive money into our economy.)

by Yvil | 15th Jan 25, 10:47am 1736891271

by Dgm | 15th Jan 25, 7:54am

HFL Mate...pundits have been warning for a while..

Gee, this comment aged even worse than the "HFL, HFL, HFL……" comment of last year. Not even 2 hours…

by Snow | 15th Jan 25, 10:55am 1736891746

The cut hasn't happened yet Yves. 5 weeks away yet isn't it? The more important aspect of the cut is how much of an impact will it have? ie how much will get passed on to mortgage holders and businesses?

by JimboJones | 15th Jan 25, 1:17pm 1736900261

The market would be pretty stupid to base a fixed rate solely on the OCR at the time. It is based on predictions of what the OCR will do over the loan period. If the RBNZ increases those predictions by not cutting, then market rates will increase.

by Independent_Observer | 15th Jan 25, 12:10pm 1736896222

Didn’t you say ‘what storm’ 24hrs before Auckland had its worst ever flooding?

Which goes to show none of really know what is going to happen so do we really need to take the forecasts so personally?

by Yvil | 15th Jan 25, 1:26pm 1736900813

Yes I did. And I will once again (for the 6th time perhaps?) admit that I was totally wrong, and that I will refrain from making any weather predictions from then on.

by Independent_Observer | 15th Jan 25, 3:20pm 1736907635

But you are exactly right that the OCR will fall by exactly 50bps next month even though that is also a future event like weather systems that can be unpredictable - which you admit you get wrong? But you don’t see the hypocrisy of these positions because you know the OCR will 100% definitely drop by 50bps next month?

“I admit I can get wrong about past events but I am never wrong about future events” quotes by Yvil Jan 2025

You might be right, you might be wrong…who am I to judge…

by Yvil | 15th Jan 25, 4:32pm 1736911940

I invite you to have a closer look at my OCR predictions, made over the last 5 years.

by Zwifter | 15th Jan 25, 10:54am 1736891699

Seems to be a lot of tension in the air on here. I really cannot call it this time around, a few months ago I thought we would see another cut but now I'm going for a hold. Regardless of the outcome, lets see what the banks actually do, after all that's all that really matters.

by Independent_Observer | 15th Jan 25, 12:13pm 1736896399

Yeah I would personally hold and see what develops globally - it honestly wouldn’t surprise me if the Fed starts hiking again this year and cuts now really wouldn’t help us down track if that is the new direction if the global reserve currency.

(but the RBNZ will probably do whatever is the most extreme option ie cut more or too much. A .25cut might be a good compromise).

by Whatwillhappen | 15th Jan 25, 1:25pm 1736900718

Apart from the last couple of years interest rates for the duration of our mortgage have been 5.15% or lower. I put my money where my mouth is and fixed half the mortgage yesterday for 5 years @5.89. The other half comes off fixed term in April. The .5% cut is likely mostly priced in, so interest rates won't get much better in my view.

by Yvil | 15th Jan 25, 1:29pm 1736900984

Well, at least you have certainty for 5 years. I think a lot of things are going to happen in these next 5 years, mainly not-so-good things. That's why I will re-fix short, to be able to adapt quickly.

by JimboJones | 15th Jan 25, 1:40pm 1736901647

Fix long if you can't afford interest rates to increase and need the assurance. Fix short if you can afford to gamble a bit.

by Zwifter | 15th Jan 25, 1:49pm 1736902144

All relative I guess but your "Half" is possibly more than our "Full" so the 5.49% at 2 years was looking good. Cannot see rates going lower than high 4's regardless.

by Whatwillhappen | 15th Jan 25, 1:56pm 1736902571

Under 100k, so the certainty was better than the $10 a fortnight for the lower rate. We'll see what happens in April (probably fix short) then smash whichever one has the lower interest rate.

by Whatwillhappen | 15th Jan 25, 1:56pm 1736902597

by blobbles | 15th Jan 25, 10:55am 1736891702

Fuel prices are increasing in NZ now... inflation is sure to rise if they remain elevated.

by JimboJones | 15th Jan 25, 11:10am 1736892633

Fuel prices go up and down all the time, they don't typically cause an OCR change.

by Independent_Observer | 15th Jan 25, 12:14pm 1736896484

Ah it’s probably biggest input cost for every good and service we consume on a daily basis.

by JimboJones | 15th Jan 25, 12:38pm 1736897930

But it fluctuates frequently. If it went up and stayed up, that would cause long term inflation. If it goes up this month and goes down again in 3 months time (which is what it tends to do), that should not result in an OCR increase.

I remember paying $3.30 a litre just before Labour temporarily reduced the fuel excise, yesterday I paid $2.55. If fuel price is such a big factor, general prices should be much lower now then then, we should have had massive deflation.

by M0ralHazard | 15th Jan 25, 1:19pm 1736900370

If you look at the graphs on this website, 91 fuel is pretty much exactly the same price it was 1yr ago

by blobbles | 15th Jan 25, 1:26pm 1736900775

Hence my comment saying if it "remains elevated". Random fluctuations don't matter so much, they are absorbed by businesses as they are expected. However if energy prices are continuously higher, businesses pass on the extra costs to customers - inflation.

by JimboJones | 15th Jan 25, 1:35pm 1736901321

Fair enough. But it shouldn't be something Orr is currently worried about. Maybe in 6 months time...

by WellingtonInvestor | 15th Jan 25, 4:19pm 1736911171

Lower interest rates look to be resulting in a weaker NZ dollar, so fuel is more expensive to import. THis likely gets worse if they drop the OCR even more. Non home owners or those without a mortgage will pay the cost.

by Tui12 | 16th Jan 25, 11:06am 1736978776

Diesel is below 1.90 at the pump right now, another drama queen.

by WestieAJ | 15th Jan 25, 11:54am 1736895278

China is trying to export its deflation to the world. But can the world still afford it? This being reported today

Logistics company said “ecommerce volumes had fallen off a cliff” since the start of the year, after previously supporting air freight rates out of China.

by HouseMouse | 15th Jan 25, 12:20pm 1736896808

Base case is OCR will not need to move below 3.25%? Really?

my base case is 2.5-3.0%

by lt84 | 15th Jan 25, 12:19pm 1736896784

The RBNZ has got no choice but to cut at least 50 bps as the dreadful govt has decimated the economy

by The Man3 | 15th Jan 25, 1:26pm 1736900766

To be fair the previous labour government were the worst performing one NZ has ever had.

The current coalition is trying to get the country out if the mess that was created and it will not be easy with the amount of debt they accrued.

They should never ever get back into control again.

by blobbles | 15th Jan 25, 1:34pm 1736901256

Fact check:

NZ GDP 2017=322b

NZ GDP 2023=377b

Roughly 17% growth

https://rep.infometrics.co.nz/new-zealand/economy/growth

What was the GDP growth rate after the first year of National in power?

So far the quarter growth rates with National have been:

0.3%,0.3%,-1.1%, -1%

Careful what you wish for.

by JimboJones | 15th Jan 25, 1:38pm 1736901517

The unemployment rate tells a similar story.

Hard to attribute the current downturn solely to National. But you would expect the "worst government ever" to have much worse figures over their 6 years than that!

by number8wired | 15th Jan 25, 3:57pm 1736909850

Someone who calls the previous Labour govt the 'worst performing ever' bases their opinions purely on feelings not facts.

by RookieInvestor | 15th Jan 25, 1:54pm 1736902465

Fact check:

NZ GDP 2017=322b

NZ GDP 2023=377b

Roughly 17% growth

At what cost? a lot a debt to do so.

by blobbles | 15th Jan 25, 2:12pm 1736903566

Debt only matters as a percentage of GDP. And the current lot are actively shrinking GDP, so the percentage of debt to GDP is increasing.

It doesn't really matter how you look at it. The current lot are at least as bad as the last lot, but numbers coming through from their austerity program (which hasn't worked anywhere else in the world) are pretty ugly.

I am politically apathetic between the two, just looking at the financial figures coming out.

by RookieInvestor | 15th Jan 25, 2:35pm 1736904911

Debt only matters as a percentage of GDP

Debt to GDP ratio.

2017 : 21.6%

2023 :39.3%

over the previous governments terms they almost doubled the debt to GDP ratio.

A 50% increase in debt for a 17% increase in GDP seems like a poor job.

2024: 39.15%

current government working on reversing that, 2024 (the current government) showing the only decrease in debt to GDP over the last 5 years.

by JimboJones | 15th Jan 25, 2:44pm 1736905485

Obviously a lot of that was due to Covid, and in most cases National said they would have done the same. But you do make a good point.

by blobbles | 15th Jan 25, 3:53pm 1736909600

I wonder what that figure is, if you take out COVID debt? Given National said they would have done exactly the same, not sure it can be attributed to any political party. Government debt at the end of 2023 was 155b NZD. Treasury reports we spent 70b on COVID response and recovery. So close to half. Also we should note Labour was paying down debt pre-COVID (or growing the economy):

https://tradingeconomics.com/new-zealand/government-debt-to-gdp

by JimboJones | 15th Jan 25, 2:40pm 1736905227

Is it actually austerity though?

In economic policy, austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both.

In NActs case they are making spending cuts to pay for some of their tax cuts, so there isn't a reduction of money in the economy. In fact the spending cuts don't cover the tax cuts, so NAct have stimulated the economy.

by blobbles | 15th Jan 25, 3:48pm 1736909301

They have slashed a lot of projects that would have stimulated the economy and thrown over 10k government workers out. None of that is stimulatory.

Their tax cuts were basically meaningless amounts that were instantly eaten up by inflation. I doubt anyone feels richer because of them and spending has dropped from a year ago, in spite of them.

by JimboJones | 15th Jan 25, 3:53pm 1736909621

It was $40 a week for a couple who met the income requirements. Spending would have probably dropped more without the tax cuts.

by number8wired | 15th Jan 25, 3:59pm 1736909979

It's the worst of both worlds. Borrowing for tax cuts while otherwise going hard on austerity.

by interesting1234 | 15th Jan 25, 4:22pm 1736911360

More cuts coming in the health sector folks, It has had a slash somewhat and more coming in other sectors, coupled with not refilling positions when others leave their roles, and redeployment of some. My source is on the inside.

by MacroView | 15th Jan 25, 2:17pm 1736903844

The growth in the GDP figure from injecting more money into the system was artificial not real growth. The inflation that accompanied this 'growth' is the indication that it was artificial.

by Pragmatist | 15th Jan 25, 1:54pm 1736902450

To be fair the previous labour government were the worst performing one NZ has ever had.

NAct: 'Hold my Beer and watch this..'

by ex agent | 15th Jan 25, 1:59pm 1736902740

Luxon is doing his best to give control to the left at the next election. And I voted National. He is totally tone deaf and out of touch. We certainly lack leadership just like nearly every country in the world including the States.

by WellingtonInvestor | 15th Jan 25, 4:20pm 1736911251

Austerity doesn't work though, and that is the current governments plan

by HouseMouse | 15th Jan 25, 12:38pm 1736897899

In my opinion, the bank economists are profoundly misreading the economy. I think it’s significantly weaker than they are stating. I also think they are putting too much stock in the surveys. But I guess that’s their method.

by Mr Ed | 15th Jan 25, 3:24pm 1736907861

I reckon

by MacroView | 15th Jan 25, 12:49pm 1736898563

RBNZ appears somewhat trapped, or at least heavily constrained, by their frankly unwise 'forward guidance' from late 2024.

by MikeM | 15th Jan 25, 2:47pm 1736905636

I'm with ASB on this one. Current retail rates are not stimulatory and we need them at another 100 points lower (probably more) to give consumers enough wiggle room to confidently spend again.

The RB has underestimated the damage done to household budgets by double digit rates and insurance hikes inflicted in back half of 2024, IMO.

by HouseMouse | 15th Jan 25, 3:10pm 1736907058

Exactly. But we also need the rates much

lower to stimulate the housing construction sector. That needs retail rates no higher than 5% to stand a chance at genuine recovery.

Collectively, housing construction, retail and hospo make up a big part of our domestic economy, and are very sensitive to interest rates

by meh | 16th Jan 25, 2:46pm 1736991982

Yeah nah, The Financial Market needs to adjust. Capital destruction is necessary. If our esteemed economic prophets are going to preach economic/business cycles etc, then the cycles and natural order need to be allowed, not manipulated to maintain the illusion.

What is the recovery if we're reliant on house price inflation?

by ChrisOfNoFame | 16th Jan 25, 2:59pm 1736992744

"lower to stimulate the housing construction sector."

Not going to happen without a tax system overhaul.

Or put another way, with NZ's current tax settings, lower interest rates suck up the majority of 'new lending' buying existing assets ... and sadly, only creating new assets when, or if, prices have risen, usually substantially.

by WellingtonInvestor | 15th Jan 25, 4:17pm 1736911058

The lower rates haven't resulted in an immediate reverse to the house price falls, and NZs economy i essentially a housing market these days. No surprise as it takes time, but they are now wanting to drop the OCR even more. That will likely result in a weaker NZ dollar and higher price for imported goods. NZs OCR is already lower than Australias.

by HodlKiwi | 15th Jan 25, 10:19pm 1736932757

House price increases tend to come at the end of the interest rate cutting cycle as people roll off existing mortgages. Still a way to go if there ever is to be a recovery

by ChrisOfNoFame | 16th Jan 25, 10:22am 1736976159

111 comments thus far and precious little comment on the fall in the NZD and the effects that will have on inflation & the cost of living for the bulk of us.

Let's not forget that "We" - that vast majority - import much of what we consume. While revenues from exports are concentrated in a relatively small number of people.

by Let me be Frank | 16th Jan 25, 10:39am 1736977165

"While revenues from exports are concentrated in a relatively small number of people."

And many of that cohort will be 'encouraged' to reduce their debt levels by the banks, so much of that revenue increase will not find its way into the wider economy.

by Zwifter | 16th Jan 25, 10:41am 1736977319

I have to be honest Chris, I thought all we had to do was hang on tight and get through 2024 and we would hit the blue sky in 2025.

by Albert Grogan III | 16th Jan 25, 11:04am 1736978666

Why don’t these policy makers get off their ass and tour the country. NZ is a small country get out there and talk to business owners face to face. You’re paid very well, get out from your offices and get on the coal face, instead of relying on previous quarters data collection. Businesses that act this way never react on time. It should be mandatory for reserve bank decision makers to tour NZ cities once a month. The economy is clearly struggling look at the vacant tenancies in every town and city. It’s blatantly clear they need to act now and fast.

by ChrisOfNoFame | 16th Jan 25, 12:42pm 1736984535

100% agree.

Unlike our electorate politicians who have to get back to their electorates from time to time ... The un-elected RBNZ'er that drive monetary policy have no such requirements.