Economist warns against OCR cut next week

Westpac chief economist played a cat among the planned pigeons saying that the reserve bench (RBNZ) should not cut the Official Reference Cash rate (OCR) in next week’s monetary review.

Kelly EckHold said he expects RBNZ to go ahead with a base -sized cut to 3.5%, because it had already strongly suggested an additional cut when it reduced the OCR in February in a third consecutive cut of 50 points.

But he wondered if another cut is necessary or should be delivered now.

“This OCR cut is probably the wrong thing to do.”

Eckhold said recent numbers showed an improvement economy, but also clear inflation pressures.

“Since the mandate is focused only on inflation, it is difficult to defend the cutting rates at all meetings here.

“A cut in May’s monetary policy statement should probably still be justified. But it is less clear that other cuts would be necessary from there.”

Meteorologists and financial markets are betting on a slowdown in the size and pace of cuts, but back to the 25 base cuts in April and May, with an opinion divided into a third cut to 3% by September.

A lot of clearance, the economy needs to reinforce

The argument for deeper and deeper rates is based on the view that the economy is just leaving the recession, recovery is warm and there is a lot of economic clearance.

“A 25 PB cut this month looks roasted,” said Sharon Zollner, Anz chief economist.

“The real estate market is not going anywhere fast, consumer confidence is in the criteria, the recovery of the job market is quite slow and the elevator in retail spending is gradual.”

BNZ Chief of Research Stephen Toplis said the job market would probably weaken further and will remain uncertainty about the consequences of US tariffs if they occur.

“The only remaining real point of interest in New Zealand’s history is when the bank will stop cutting.”

He expected the cash rate to end 2.75%at the lower end of the predictions for the neutral level “Goldilocks” to the OCR.

He said the abrupt departure of former Governor Adrian Orr last month may also have some influence on next week’s decision.

“On the bank, as RBNZ is waiting for a new governor to appoint, it would be reasonable to expect that it would be a little more cautious in his decision making than the case would be,” Toplis said.