10 Mar 2015
RBNZ to cut rates by 0.5bp to 3% in 2015 - Capital Economics
FXStreet (Bali) - Paul Dales, Chief Australia & New Zealand Economist at Capital Economics, expects that by the the end of the year, the RBNZ cash rate may have fallen from 3.5% to 3.0%.
Key Quotes
"The RBNZ may decide that the weaker outlook for wage growth will mean that non-tradables inflation is unlikely to rise from its current unusually low level as fast as it previously thought. And the sharp fall in petrol prices in January will force it to revise down its forecast for tradables inflation. Nonetheless, a slightly higher projection for the unemployment rate and a slightly lower inflation forecast won’t prompt the RBNZ to abandon its view that rates will be on hold at 3.5% for “some time”."
"We think the revisions, though, are a sign of things to come. If we are right in expecting the hit to the economy from last year’s fall in the price of key commodity exports and the slowdown in Australia to be more painful than widely expected, then at some point the RBNZ will revise its forecasts more significantly. We expect GDP growth to slow from 2.8% last year to 2.3% this year, resulting in inflation staying close to the bottom of the central bank’s 1-3% target range."
"That would bring rate cuts back onto the agenda, with a cut in June not completely out of the question. By the end of the year, the cash rate may have fallen from 3.5% to 3.0%. In contrast, the markets expect rates to be on hold this year before they start to rise late next year."
Key Quotes
"The RBNZ may decide that the weaker outlook for wage growth will mean that non-tradables inflation is unlikely to rise from its current unusually low level as fast as it previously thought. And the sharp fall in petrol prices in January will force it to revise down its forecast for tradables inflation. Nonetheless, a slightly higher projection for the unemployment rate and a slightly lower inflation forecast won’t prompt the RBNZ to abandon its view that rates will be on hold at 3.5% for “some time”."
"We think the revisions, though, are a sign of things to come. If we are right in expecting the hit to the economy from last year’s fall in the price of key commodity exports and the slowdown in Australia to be more painful than widely expected, then at some point the RBNZ will revise its forecasts more significantly. We expect GDP growth to slow from 2.8% last year to 2.3% this year, resulting in inflation staying close to the bottom of the central bank’s 1-3% target range."
"That would bring rate cuts back onto the agenda, with a cut in June not completely out of the question. By the end of the year, the cash rate may have fallen from 3.5% to 3.0%. In contrast, the markets expect rates to be on hold this year before they start to rise late next year."