Jarrod Kerr
Kiwibank economists predict a major 75bps cut to the official cash rate following weak inflation data.
Figures show inflation came in at 0.7% in the September quarter, weaker than expected, and likely to be a concern for the central bank as it attempts to revive the economy.
The Kiwibank team, led by Jarrod Kerr, said: "Our borders are closed, and the summer months will be challenging for businesses reliant on international arrivals. With inflation starting from a weaker position, and likely to weaken from here, the RBNZ will feel emboldened to act. And in conjunction with a bank funding for lending programme, we expect the RBNZ to move aggressively and cut the OCR by 75bps in February to take the cash rate to -0.5%."
The bank does not believe negative rates will be effective, but says the Reserve Bank will opt for the unconventional monetary policy as the economic crisis deepens.
The prediction comes as markets anticipate lower interest rates next year.
The RBNZ funding for lending programme, tipped to offer $30 billion-$50 billion of cheap lending to banks, could arrive by the end of the year.
Banks including ASB predict mortgage rates will plummet to 1.5% next year because of the Reserve Bank's plans.
Low rates have fanned the flames of the housing market this year, with record increases in the market since Covid.
Reserve Bank governor Adrian Orr says the central bank is monitoring the housing market, and could reimpose LVR restrictions on investors in an effort to keep a lid on rising asset prices.
