Bollard to cut OCR by 150 bps next week: Citi economists

Bollard to cut OCR by 150 bps next week: Citi economists
Citigroup Global Markets economists said they now expect Reserve Bank Governor Alan Bollard to cut the Official Cash Rate by 150 basis points next Thursday to 3.5%. The Citi economists also revised their forecast for the OCR over 2009, predicting it to reach as low as 3% by June and staying there through December. They pointed to New Zealand's falling inflation rate as being the key to allowing the RBNZ to cut more aggressively. The consensus in New Zealand has been for a 100 basis point cut to 4%, but signs are emerging that a larger cut may be on the cards. "The falling inflation environment (along with the weakening economy) will provide the RBNZ with clear support for a further monetary policy easing at the 29 January OCR Review," Citi economist Stephen Halmarick said. "Given the very weak Asian economic data this week, and the large fall in Q4 08 CPI, we now expect the RBNZ to ease by 150bp at the 29 January OCR review." "Further easing at the 12 March Monetary Policy Statement is also expected, with the growing risk that the RBNZ will need to take the cash rate lower than our previous forecast of 3.5%." Citi also said that there was now a strong possibility that the Reserve Bank of Australia will cut its official rate by 100 basis points on February 3 to 3.25%, from its previous forecast of a 75 basis point cut. They said their new expected low in Australia was 2.25%, following another 75 basis point cut in March. "The highly synchronized nature of this global economic downturn and the truly appalling economic news since the start of the year is likely to have surprised the RBA on the downside (as it has us)."

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