The Reserve Bank (RBNZ) has moved "too little too late" with its Official Cash Rate (OCR) cuts this year "and the delay has cost us", Kiwibank economists say.
In their weekly First View publication, chief economist Jarrod Kerr, senior economist Mary Jo Vergara and economist Sabrina Delgado say they had "long advocated" for an OCR move to 2.5% (which is where it is now) but that move came too late.
"The recovery we anticipated for this year stalled, activity lost momentum and Kiwi households and businesses have suffered further. All of which has put the Reserve Bank in a position of needing to do even more. They didn’t do enough, the economy stalled again, and now they’re having to do more to mop up the mess."
The Kiwibank economists are expecting (along with the markets) that in its OCR review this week the RBNZ will make a further 25 basis-point cut to bring the OCR down to 2.25%.
"A cut to 2.25% this week is perfectly priced by markets and requires little justification. The Kiwi economy still needs more support. Yes, the RBNZ has delivered a significant amount of easing. 300bps to be exact. But for the majority of this year, the cash rate remained at restrictive levels. It is only after the cut to 2.5% in October that policy moved beyond neutral ground and into more stimulatory territory," the economists said.
They also raise the possibility of a 50 basis-point cut.
"Why not? Indeed," they said.
"It’s certainly within the realms of possibility, and should be on the table for discussion by the RBNZ’s MPC [Monetary Policy Committee].
"Another “surprise” 50bp move gets the cash rate to 2%, without the long wait until February’s decision. A 50bp move to 2% would clear the decks, and clean the slate for incoming Governor, Dr Anna Breman," the economists said.
"The RBNZ’s mistakes over the past two years have been centred around the inability to recognise the recession, and an inability to respond to the recession after it became painfully clear."
The economists say even if they are not actually calling for a 2.00% OCR and "hope with fingers crossed" that a 2.25% cash rate will do enough…" we certainly like the idea to getting another outsized move to crank things up a bit. And if it works, you just start hiking again, a little earlier than expected."
Beyond the cut itself, attention will fall to the RBNZ’s set of refreshed forecasts and OCR track in the new Monetary Policy Statement.
The economists say that given the RBNZ has already delivered more than the previous track implied, and in October the RBNZ signalled further ‘reductions’, "we’d expect a lower terminal rate with the RBNZ keeping the door open to more easing. And it's the move in the track which will drive and set markets up for the remainder of the year".
The economic recovery remains fragile, they say.
"Greenshoots are emerging but are few and far between. We hope a 2.25% cash rate will be enough for activity to spread. But we may need more."
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"The recovery we anticipated for this year stalled, activity lost momentum and Kiwi households and businesses have suffered further. All of which has put the Reserve Bank in a position of needing to do even more. They didn’t do enough, the economy stalled again, and now they’re having to do more to mop up the mess."
At least we have someone to blame, but the banker's comment suggests we're a command economy that is over-reliant on a council of priests to look in to the chicken bones and select the appropriate potion or spell.
Of course the cynics will say that their tinkering is still based on ensuring the price of debt is lower than the rate of inflation. The Aotearoa economy is toast without cheap debt.
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