All eyes on RBNZ's last big call for 2024

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50 or 75 ... (or even just 25)?

We’re just a week out from the last big Reserve Bank Official Cash Rate (OCR) call for 2024 and expectations are that we’ll see another 50-basis-point cut. That would take the rate to 4.25% ahead of the long summer break. From there the Reserve Bank (RBNZ) won’t make another call until February 19, 2025.

Will that be enough to ensure that debt-laden businesses and households can actually “survive to 25″?

It looks like it will need to be. Enthusiasm for a larger 75-basis-point cut (bps) looks to have waned in the past few weeks with unemployment data landing slightly stronger than expected (at 4.8%).

Back in mid-October, there was some gloomy momentum building for a 75bps cut. Singapore-based Abhijit Surya of Capital Economics was one of the first to put it on the table.

“We think that the bank’s concerns about the state of the economy are well founded, especially with new data showing that household incomes continue to be squeezed by the ongoing downturn,” Surya wrote.

“Against this backdrop, there is a growing risk that the RBNZ will pull the trigger on a 75bps cut in November, as opposed to the 50bps cut that both we and markets are anticipating.”

But things have shifted since then.

In an early preview released this week, BNZ head of research Stephen Toplis notes that a reasonable case could still be made for 25, 50 or 75 basis points.

But “we don’t think that what we are experiencing is a shock that requires a knee-jerk response”, Toplis writes.

“We’re not in a GFC or a pandemic but we are in a phase something more akin to a ‘normal’ economic cycle. Consequently, a 75-point move is neither needed nor desirable. Capping things off, the market is currently pricing in a 50-point cut and there is no need for the RBNZ to provide a shock, which could result in unnecessary instability in interest rates, the currency and growth.”

Others may disagree. In fact, Toplis is prepared to make some of their points for them as he canvasses the outside chance of an outsized cut.

“The argument for a 75-point cut revolves around the fact there is little evidence the economy is yet gaining much traction from the easing we have seen so far, annual inflation could well be headed to a sub 2% level, and policy has a long way to go before it is openly stimulatory.”

Westpac chief economist Kelly Eckhold is only giving a 75bps cut a 5% chance in his preview.

If it did that, the RBNZ would be signalling high confidence that inflation will remain no higher than 2% and perhaps concern that the recovery in economic activity might be more sluggish than hoped, he says.

Eckhold is picking a 50bps cut, with the RBNZ using its forecasts to signal how hawkish or dovish it is.

But he still sees some chance they’ll opt for a 25bps cut, “noting that the starting point for the economy has not been quite as weak as depicted in the August MPS [monetary policy statement] and that downside risks appear less prominent”.

“The RBNZ’s projections will likely suggest further OCR cuts in 2025 and a 3.5% OCR by year-end (around 35bps lower than they forecast back in August). The RBNZ’s terminal rate will likely still be in the 3-3.5% zone after 2025.”

What you're missing

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Here's what's covered in the full edition:

• Recalibration
• Poor performance
• Job ads still falling
• An economic fix ... but not til ‘26
• Brain drain easing?
• Reader question – departing migrants

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