ASB economists say the Reserve Bank is closer to the end of its 'easing cycle' than they had previously judged

ASB economists have changed their call and now pick that the Official Cash Rate will be cut just once more, probably in August, to reach a low of 3.00%.

Since August last year the Reserve Bank has been cutting the OCR from its cycle high of 5.5% and it is currently at 3.25%.

The RBNZ has its next review of the OCR on July 9.

Earlier this year there was a widespread belief (backed up by financial market pricing at the time) that the OCR would go as low as 2.5% this year.

But since then there's been a spike in inflation again and with the global turmoil in and around but not limited to tariffs, doubts have come in about how low the rate will go.

Current market pricing is juggling between an expected low of between 2.75% and 3.00% - but the timeframe is moving out for this into next year.

ASB chief economist Nick Tuffley says the ASB economists have switched from their view that the OCR would reach a low of 2.75% later this year and have now revised this forecast to one more 25 basis-point cut, most likely in August 2025.

"We assess that the balance of risks has tilted towards the RBNZ being more cautious and with a higher threshold for cutting the OCR than we thought back in May," Tuffley said.

"The RBNZ is balancing the risks stemming from a short-term spike in inflation against the still-uncertain impact on medium-term inflation from US tariffs and their wider global impacts".

He said he expectst the RBNZ will have a high degree of wariness about the 2025 spike in inflation, and its potential flow-on effects to inflation expectations - people’s behaviours around prices and wages.

"We are currently forecasting inflation will exceed 3% this year (though oil prices can move the outlook around). A chunk of the lift is being driven by food and fuel prices, which are high-frequency purchases that tend to be remembered and influence people’s perceptions."

In the year to May, food prices rose by 4.4%.

"To the downside – and over the medium term – are the impacts on NZ inflation of US tariffs and other global responses to them. Our earlier work suggested the Liberation Day levels of tariffs could reduce NZ GDP by up to 0.5 percentage points). Most likely, the tariffs will get set at lower levels than these. It is very early days, but so far the tariff impacts on NZ as a whole appear limited," Tuffley said.

"In short, we are more mindful of the updated risks to inflation and a little less concerned about the negatives from the trade war. Accordingly, we think the RBNZ is closer to the end of the easing cycle than we previously judged.

"But there are huge uncertainties at present, across the health of the domestic economy, the stability of the Middle East, and where US tariffs will be set and their ultimate impacts on NZ."

The main bank economists' views on where the OCR will end up have diverged somewhat. 

Kiwibank and ANZ economists retain the view it will need to go as low as 2.5% ultimately, BNZ economists say 2.75%, and Westpac economists think, as ASB does now, that there will be one more cut in August.

The changing mood among the big bank economists does mean that there may not be too many more mortgage rate reductions in the rest of the year - though obviously much remains up in the air.