Economists at one of the country’s largest banks have revised their prediction for when the Reserve Bank will cut the Official Cash Rate, bringing it forward from February next year to November this year.
ASB chief economist Nick Tuffley said the dynamic was changing quickly this year and inflation indicators were starting to “soften with more alacrity”.
“We are more confident that inflation will be comfortably back in the target band by year-end,” he said.
“Households are starting to buckle more noticeably under the various pressures of high interest rates and high (though easing) living cost inflation.
“To date, the labour market has been a bit of a saviour, with employment holding up and wage growth relatively stronger. Even that story is starting to change, with cost-cutting pressures in organisations, wage growth slowing, and job security worries on the up.”
Tuffley said ASB expected the cuts to begin in November after the Reserve Bank has “digested” the consumer price index (CPI) and labour market releases in October and November.
“July’s OCR announcement may be too soon to see much shift in the RBNZ’s balance of inflation risks.
“Getting inflation back comfortably in the 1-3% target band is what the RBNZ has been trying hard to do for over two and a half years. But inflation proved surprisingly resistant, so the RBNZ pushed even harder,” Tuffley said.
“Now, though, we are seeing mounting evidence that tight monetary policy is starting to make the economy buckle. That will increasingly flow through to an unravelling of inflation pressures, which we expect the RBNZ to respond to fairly quickly.”
The official cash rate was currently at 5.5%, where it has been since May last year.
A review was due next Wednesday, but the Reserve Bank was expected to make no change.