Economists have been quick off the mark to say the Reserve Bank needs to cut the Official Cash Rate by 50 basis points (to 2.5%) next month after the surprising 0.9% slump in GDP for the June quarter announced on Thursday.
Both Westpac NZ and Kiwibank economists swiftly put out commentary saying the RBNZ needs to act quickly and ASB economists followed later in the afternoon.
Kiwibank economists said taken at face value "the significant drop-in activity" in the June quarter "proves, once again, that the RBNZ has not yet delivered the appropriate monetary policy setting".
"We have been advocating for a 2.5% cash rate for over 2 years. And now it is crystal clear that current monetary policy settings, with a 3% cash rate, are not enough. We are advocating a 50bp move in October," the economists said.
"Get it done. Get to 2.5% asap. No more time for mucking around. It’s time for leadership out of the RBNZ," they said.
Westpac NZ chief economist Kelly Eckhold said: "We now think the RBNZ will cut 50bp in October and 25bp in November (previously we expected 25bp cuts at both of those meetings)."
"The cut in October seems a high probability, November is likely but more uncertain."
A sub-2.25% OCR by the end of the year?
And ASB economists say they now expect a 50bp OCR cut in October, and a 25bp cut in November to bring about a 2.25% year-end OCR as the RBNZ moves to more actively support the economy.
"The OCR path remains conditional on the economic outlook, and with incoming data pivotal (the QSBO on October 7 for example). If we fail to see signs of recovery in interest-rate sensitive parts of the economy as the year progresses and if pricing side metrics point to cooling inflation, a sub-2.25% OCR is conceivable," the ASB economists said.
This all comes as head of advocacy and strategy at the Employers and Manufacturers Association (EMA) Alan McDonald says the results are a knock at the wrong time.
McDonald says: "Even though the data reflects the June quarter, and we’re now seeing signs of improvement, it still sends a negative signal to businesses that are already cautious about investing and hiring."
“We know from our exporters and primary producers that things are picking up, but there’s a two-speed economy. Sectors such as construction and services in the main cities are still struggling, and confidence remains delicate."
Willis says it's 'global uncertainty'
Finance Minister Nicola Willis says the Gross Domestic Product figures for the June quarter reflects the impact of global uncertainty on consumers and businesses.
Willis says the economy had been growing strongly in the previous six months “but suddenly had the stuffing knocked out of it”.
“It is important to remember that this is backwards-looking data.”
“Lower interest rates are filtering through the economy. There is evidence of increased mortgage lending. And the impact of tariffs has not been as disruptive as initially feared. The outlook for most export sectors remains positive,” Willis says.
“All forecasters are expecting economic growth to strengthen from now on as uncertainty about the impact of increased tariffs eases.”
Labour finance spokesperson Barbara Edmonds says: “Christopher Luxon stood in front of New Zealanders in 2023 and said his business experience would fix cost of living and the economy. Instead, he has failed dramatically."
“Christopher Luxon has no plan to turn things around. That is simply not good enough,” Edmonds says.
Additional reporting by David Hargreaves
26 Comments
Its funny how everyone forgets about the RBNZ's role when it suits.
The RBNZ should not make any more cuts to the OCR as CPI is at the upper end of their target. If anything the only change they should be considering is an increase.
The RBNZ are not responsible (anymore) for creating GDP growth or employment.
Yeah and note the “illusory truth effect” (or consensus illusion) in play. The assumption that lowering the rate will solve the problem.
The RBNZ should not make any more cuts to the OCR as CPI is at the upper end of their target. If anything the only change they should be considering is an increase.
The RBNZ are not responsible (anymore) for creating GDP growth or employment.
Those are extremist words JJ. I wouldn't go uttering anything like that around the water cooler as we might see a citizen's arrest until the police arrive.
Personally I think they should lower the OCR - but only because I think they should have full employment in their mandate (with inflation being their primary role).
But with their current mandate, its hard to see how they could justify any OCR cut let alone a 0.5% one.
Personally I think they should lower the OCR....(with inflation being their primary role).
We know from history that the ruling elite doesn't give a rats about distorting the price of money and the negative impacts it has on the majority. We also know that they need to position their pieces on the board accordingly for their own self preservation and for the preservation of their peers.
Controlling inflation is not really achieved by lowering rates. OTOH, there is also evidence that higher rates are also correlated with periods of high inflation. My reckon is that too much easy money has been the precursor that puts us in the precarious sitn we have now.
It would probably have the same affect as recent lower rates had on house prices. None.
The can kicking is over.
Perhaps one more spurt if you lower, but suggestions lower rates is the solution is ridiculous.
Perhaps one more spurt if you lower, but suggestions lower rates is the solution is ridiculous
Given that we're a one-trick pony, I don't really see any other option eventuating. The weasel words that accompany any cutting of the OCR will be interesting.
The Trick of selling houses for more then you paid... is now well known, there is no magic, and not enough new bag holders....
We are now a no trick pony, that's quite happy to drop its shoulder and dump you forward
and not enough new bag holders....
Well I for one have been arguing this for some time. And for good or bad, if Ponzinomics is the be-all-and-end-all, you have to admire Aussie for crush loading their cities with migrants to keep it humming. Sure there will be growing numbers of homeless. But I guess that's like the trade-off of the Second Amendment and gun deaths.
Do they class it as a vehicle, or a home if you live in it? XD
Agree but pressure and politics will prevail.
I think you will find if the the RBNZ input a contraction of 1% in 1 quarter into their models this will take a lot of pressure off capacity constraint, if you look at the Index rather than the quarterly numbers our real index/capita shows a long run back to where we have been, meaning hard to see any inflationary pressures for quite a while ( in a quant model that is) So with that wage pressures will remain very low which will give their forward guidance a lot of comfort in terms of CPI.
Obviously that's the theory, but that's what they use to forecast.
Pump the gas pedal. Yeah nah
Stagflation, with an emphasis on stagger.
RBNZ and Govt need to get the money tied up in the housing ponzi actually doing something constructive or paying it fair share of tax, or ideally both. Further rates cuts would be like incentivising a heroin addict to start re-injecting themselves halfway through the withdrawal process. Enabling further speculation and concentration of capital for tax free outcomes is dumb.
RBNZ and Govt need to get the money tied up in the housing ponzi actually doing something constructive or paying it fair share of tax, or ideally both. Just enabling further speculation and concentration of capital for tax free outcomes is dumb.
Sorry to say but you can't kneecap the Ponzi just like that. All hell would break loose. Even if there were any firm commitment to do so, it would take at least a generation to work its way through. And it's fair to say that time frame is being generous. The boomer / silent generation would be bitter and would feel justified that the rug has been pulled from under them. This would filter through to the Gen Xers. The Millennials would soldier on regardless.
It has to start at some point. The Boomers are all in it clearly "not" for capital gain otherwise they declare and pay tax. That wont happen. They are just in it for the tax avoidance and are holding the rest of the nation to hostage along the way.
Now the boomers are in it for yield play, so will the new entrants, hence my continued calls we are not at the bottom yet. At least the lower OCR will cushion the falls a touch, though really the deferred maintenance of much of the rental stock is going to be a big issue.
National might be toast. Even if the economy picks up next year, it may be too late to win back voters in time for the election.
The situation is dire now and the left only polling 50%.
Its seems that the ANZAC motto, Least we Forget.... is alive in voters minds.
I don't think there's any easy short term fix that will get us out of this. Banks have the majority of their lending in housing and house price speculation has been entrenched for decades (since the 1980's), The overpriced houses have wasted huge amounts of money, peoples work and lives that can't be recovered. Fortunately houses last longer than tulips https://en.wikipedia.org/wiki/Tulip_mania#:~:text=The%20major%20acceler…. and people can at least live in them.
A.I. has produced some data to peruse-
Period Typical Mortgage Rate Range
1970s 7–11%
Early-Mid 1980s 15–19%
1990s 6.5–10%
2000s 5.5–8%
2010s 4.5–6%
2020–2021 2.5–3.5%
2023–2024 7–8.5%
Rate Table (Indicative, September 2025)
Term Typical Rate Range
1 year 4.75% – 5.25%
2 years 4.75% – 5.25%
3 years 4.95% – 5.49%
4 years 5.09% – 5.39%
5 years 5.39%
Floating 5.70% – 8.55%
So presently interest rates aren't high but for banks interest rate reductions is the last chance they can find to suck on the remains of the gobstopper.
Where did you get your numbers from?....my recollection of the early mid eighties is somewhat different...obtained a mortgage in 83 at around 8%....house price was roughly 3 x my annual salary.
NZ’s economy is weak not because interest rates are “too high” or because the private sector isn’t trying hard enough, but because government is withdrawing spending while households and firms are already cutting back, in a country that runs an external deficit.
Unless fiscal policy becomes more expansionary, growth forecasts will keep being too optimistic, because they ignore the central role of aggregate demand.
You can see what has not been understood by the pointy heads....changes in attitudes and behavior in the pvte sector: individs and h'holds living within their means and firms not investing in their business expansion.
I have been predicting lower rates, consistently, for over a year, repeating over and over again that rates will go lower than every economist and the RBNZ predict, pushing against many calls who claimed that rates would have to rise because of inflation. Consequently, I have been repeatedly advising to fix mortgages short.
Who's going to offer the first sub 4 mortgage rate?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.