OCR cut to 1.5%: could it fall even further?

The central bank's Monetary Policy Committee, led by Adrian Orr, (pictured), has taken the step of easing the OCR amid weak inflation, concerns about future employment, and a slowdown in global economic growth. Economists believe we may see a further cut if the 25 basis point reduction is "not effective".

Jarrod Kerr, chief economist at Kiwibank, told TMM the RBNZ MPC had "done what was expected" amid weak economic indicators. He believes it will not be the only action taken on the OCR this year. "We are in the camp that believe another cut may be required in order to have a meaningful impact. One step has been taken today and we expect another later in the year."

Yet Nick Tuffley, chief economist at ASB, told TMM pointed out there appeared to be "no urgency" to cut the OCR again this year. "The OCR outlook appears more balanced. The Reserve Bank will be judicious about another cut, rather than rushing into it." Like Kerr, Tuffley expects a further fall this year. 

The OCR cut, and prospect of a further fall, will be welcomed by borrowers, who look set to enter an unprecedented period of low interest rates. "This great news for borrowers, and bad news for savers," said Kerr. "Other winners are exporters, as the Kiwi [currency] takes a hit."

Independent economist Michael Reddell welcomed the decision, and pointed to the central bank's inflation targets. "They still only think inflation will be back to 2% two years from now, on growth projections that themselves look optimistic."

NZIER's Christina Leung was surprised the bank acted so early, and also believes there will be another cut in this cycle, but that it could be a few years away.  She added: "Given its dovish rhetoric, we expect on balance the Reserve Bank will follow up with another cut over the coming years.