OCR drops further

The RBNZ delivered the expected 50bp cut in the OCR to 4.75% yesterday, bringing inflation risks back into better balance, says Westpac.

"According to the RBNZ the economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy," said Westpac Chief Economist Kelly Eckhold in the bank's response to the rate drop.

"Economic activity was described as 'subdued', with business and consumer spending 'weak' and employment conditions continuing to 'soften'. That weakness was partly ascribed to restrictive monetary policy."

Eckhold said, going into yesterday’s RBNZ policy review, "The only question was the size of the OCR cut that the Bank would choose to deliver. As it turns out, the RBNZ chose to cut the OCR by 50bps to 4.75%, as was expected by Westpac, most economists and as largely priced by markets.

"And looking ahead, the brief policy statement and the record of meeting indicate that a further cut in the OCR of 50bps can reasonably be expected at the next meeting on 27 November.

"We continue to forecast a further 50bps cut in the OCR on 27 November, and that the OCR will fall to a low of 3.75% in the first half of next year."

Eckhold said RBNZ is comfortable that inflation will settle around the mid-point of the 1-3% target range over the medium term.

Read Westpac's RBNZ October 2024 Monetary Policy Review here. 

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