Kiwibank economists say 'serious discussion' needed about OCR going to 2%

Economy / news

The country needs the Reserve Bank's foot 'firmly on the accelerator' in the wake of last week's shock GDP plunge

22nd Sep 25, 2:36pm by David Hargreaves

Source: 123rf.com

Kiwibank economists, long-time advocates of the Official Cash Rate (OCR) being dropped to 2.5%, now say "serious discussion" is needed about a move down to 2%. Their comments follow on from the shock 0.9% fall in GDP for the June quarter.

In Kiwibank's weekly First View publication, chief economist Jarrod Kerr, senior economist Mary Jo Vergara, and economist Sabrina Delgado, say they now expect a 50 basis point (bps) point cut to the OCR next month [taking it to 2.5%], followed by a 25bps cut in November.

"The cash rate should end the year at 2.25%," the economists say.

"Why? because it has become crystal clear that the Kiwi economy is not recovering. In the wise words of Nike, 'Just do it'.

"...We have been advocating for a 2.5% cash rate for over two years. And now it is crystal clear that current monetary policy settings, with a 3% cash rate, are not enough," the Kiwibank team say.

They say it’s saddening to see an economy still contracting after last year’s deep and destructive recession.

"We fell into a hole last year. And we’ve only dug ourselves deeper. Over the year, the economy has shrunk a further 0.6%."

Now that the 2.5% OCR the Kiwibank economists have been pushing for is looking very likely, the economists are going further.

"We need to have a serious discussion around a further move to 2%," they say.

"It will depend on how the economy evolves over summer. We think there's about a 50/50 chance that the economy may require further support. We need the RBNZ’s foot firmly on the accelerator."

The economists say they think there’s "about a 50/50 chance" of a further move of the OCR to 2% in the RBNZ's February review.

"It will depend on how the data and recovery plays out. This summer will be an important time for data watching.

"Will the housing market pick up?

"Will consumer confidence lift into consumption?

"And will business confidence translate into activity? It will all feed into the February decision. We hope it will."

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27 Comments

by Averageman | 22nd Sep 25, 2:42pm 1758508953

No. Just start liquidating the over leveraged. Those ready for this day will be fine. Those living in blind la la speculand...so sorry.

by nktokyo | 22nd Sep 25, 3:18pm 1758511104

So the forestry industry then?

by Averageman | 22nd Sep 25, 3:31pm 1758511860

If that's you thing sure. Genuine value add business is probably the go, one were solid discrete skills will drive profit. Continuing to feed specuhousing debt exploitation is just making everything too expensive domestically. That in turn drives parallel importation which is destroying what is left.

Not the definition of "winning"

by Yvil | 22nd Sep 25, 9:29pm 1758533350

An average man cannot see past property.

by Keynes | 22nd Sep 25, 2:47pm 1758509249

Wow, things must be a lot worse than everyone thought. Wait ... how of the best educated and smartest economists got it so wrong for the last 3 years. Go back and take a look at some of the economic forecasts from last year and feel embarrassed on their behalf.

No-one is asking why the modelling and forecasts are so consistently over optimistic - somethings missing from the equation.

by Phoenix (FKA JC) | 22nd Sep 25, 3:05pm 1758510357

Go back and take a look at some of the economic forecasts from last year and feel embarrassed on their behalf.

To be fair, it's unlike anything they could ever have imagined. 70-75% black swan territory.

by Dale Smith | 22nd Sep 25, 3:47pm 1758512879

You mean Trump Tariffs? So Willis was right?

by Phoenix (FKA JC) | 22nd Sep 25, 5:03pm 1758517414

Partly. The tariffs have impacted other nations such as China. So Chinese consumers of Aotearoa goods and services have changed to some degree.

Then you have post-Covid economic environment. I think they expected we'd just go back to the Ponzi and everything will be hunky dory.

by redcows | 22nd Sep 25, 2:51pm 1758509504

Silly me. I thought they wanted a serious discussion about why we "need" the ocr to drop to 2%.

They don't want that discussion about why our economy is so shite. They just want it dropped believing it's a panacea for a none productive economy.

Idiots.

by rolande | 22nd Sep 25, 3:22pm 1758511354

I've noticed in the corporate world over the last few years some very poor conversations at management and even Board level. People will say "evidence based" but it's really not rational or well thought out. Decisions and conclusions are often political and reinforce existing positions and interests. Any statement with a bank's name attached to it is often the same. If it suits their short term interests then I'm sure they'll all pile into the next financial crisis boots and all. Be wary.

by JimboJones | 22nd Sep 25, 4:15pm 1758514505

If you give people 2.5% mortgage rates and tell them to borrow, then whack them up to 7%, its going to hurt. Its the rate of change that's the problem, the RBNZ are all over the place. Even 4.79% is double what we were paying.

The RBNZ should be creating stability, instead they seem to be the ones creating instability.

by Yvil | 22nd Sep 25, 9:31pm 1758533476

Good post JJ

by Antz | 22nd Sep 25, 3:47pm 1758512869

So, these folk can't sell their product (debt), because the price (interest on that debt) is too high ...?

by Chch Lass | 22nd Sep 25, 3:54pm 1758513287

When will someone write & report on how business lending rates are moving in relation to the OCR changes? The focus/fixation is on mortgage rates, sure they have an impact on about 1/3 of the country's population who have a mortgage, but what margins are banks now making on business lending rates. Struggling business would benefit more from fair sustainable rates than clinging on hoping mortgage holders spend some money with them in the future.

by JimboJones | 22nd Sep 25, 4:18pm 1758514687

"Struggling business would benefit more from fair sustainable rates" - what is a fair rate for a struggling business? I wouldn't want to loan money to one, and I don't really want my bank to either.

by IT GUY | 22nd Sep 25, 4:52pm 1758516761

lets not move to risk rate lending/pricing

rates.... even though most banks and insurance vendors see it as increasing there margins

by IT GUY | 22nd Sep 25, 4:54pm 1758516855

lets not move to risk rate lending/pricing

rates.... even though most banks and insurance vendors see it as increasing there margins

by redcows | 22nd Sep 25, 5:09pm 1758517750

You are suffering from the delusion that business lending actually matters. To these economists only housing loans count as they are so large the size of repayments drives recession/growth. And that is the discussion that needs to be had.

by IT GUY | 22nd Sep 25, 9:08pm 1758532094

it used to matter but now banks have to put double capital against them vs resi.... and bingo 70% lending in nz is to resi

its all about risk weighted returns

by MikeM7382 | 22nd Sep 25, 6:10pm 1758521409

OCR at 2.00% is just what Luxon and Willis will be hoping for. Then they'll take all the credit (excuse the pun) for the results.

by IT GUY | 22nd Sep 25, 9:10pm 1758532220

but there will not be a result... even with low cost of credit it will remain a buyers market until it gets to an affordable income to debt level, because rates are temp and will rise again, dent is a 30 year commitment unless fannie mae and 25-30 year terms

by Yvil | 22nd Sep 25, 9:33pm 1758533605

There will be a "result", patience young man.

by MikeM7382 | 23rd Sep 25, 5:48am 1758563286

Yeah but as long as the hit of euphoria is delivered it's a victory for Luxon and Willis. And if they achieve government spending cuts, all the better. They're leaning on the RB big time. It has to work because there's no plan B.

by Yvil | 22nd Sep 25, 9:25pm 1758533121

Quelle surprise, not.

by AlanBainbridge 2192 | 23rd Sep 25, 10:18am 1758579498

I think, as many have posted on several different articles, is that the RBNZ need to do their job and not pander to the Banks drive to lower rates. They are posturing to make lending more affordable to drive up their profits.

The RBNZ needs to slow the drops now and see what pans out. We must stop this "boom" "Bust" economy driven by rising and lowering interest rates, and give some consistency to borrowers. It is clear interest rate reductions already this year have not assisted, so unlikely further drops will help. Lower rates = more borrowings = house inflation.

by LouB | 23rd Sep 25, 1:53pm 1758592389

For Heaven's sake.....

Kiwibank is all about the property sector, their business lending is only a fraction of their business.

Under exceptionally low interest rates, banks empowered the property balloon (bloody sight bigger than a bubble). Banks assessed each mortgage application and approved the lending. How short sighted are their esteemed economists that they did not predict that they were creating a house of cards that was bound to come tumbling down with the first autumnal breeze?

NZ productivity continues to sink. Residential property values do nothing for productivity. Housing is a basic human need for shelter.

While the banks rake in their exorbitant profits from property, and with crown guarantees for their depositors, what are they doing to shape a more productive economy?

There's a lot of rhetoric around how the ag sector privatises benefits and socialise the impacts from use of natural resources. I reckon banks are right up there in the privatising benefits ladder.

The economy is ripe for a reset. Who has got the long term vision and intestinal fortitude to drive it?

by KH | 24th Sep 25, 7:50am 1758657058

It's a sad economy when it all depends on somebody shifting interest rates half a percent.

We need to build a healthy one when the interest rate does not matter