Economists remain divided on how early the first rate cut will come

ANZ chief economist Sharon Zollner continues to expect no official cash rate (OCR) cuts this year but other economists, including BNZ's Doug Steel and Kiwibank's Jarrod Kerr and ASB's Mark Smith, expect one cut late this year.

The Reserve Bank held its OCR steady at 5.5% as just about every economist had expected it would.

ANZ described the RBNZ's statement as “playing with a straight bat,” and that the economy had continued to evolve broadly as had been expected in the February monetary policy statement.

Such a comment “isn't suggestive of any hurry to change stance, and against the backdrop of a market – particularly offshore participants – that saw the potential for a further dovish tilt, we may see mild upside pressure on short-end rates and the NZ dollar over coming days,” Zollner said.

She expects inflation will fall a little more slowly than RBNZ is expecting and RBNZ forecast in February that the first OCR cut wouldn't come before about mid-2025.

BNZ's Steel said his team hadn't seen anything in the balance of data since February to cause any material change to RBNZ's stance.

RBNZ's very short statement did note some “near-term pressures” which Steel read as an acknowledgement that the March quarter Consumers Price Index may be a little stronger than the 0.4% RBNZ has forecast.

BNZ is expecting a 0.8% quarterly increase for an annual read of 4.2%.

“Overall, there was nothing in today's [Wednesday's] missive from the central bank to change our broad view of the world,” Steel said.

“We maintain our forecast that the RBNZ is on hold for the time being and we continue to expect the first rate cut later this year,” he said.

ASB's Smith said the key takeout from the review is that there's “a high threshold” for any future OCR moves.

“With inflation still well above target and with inherent uncertainty over the inflation outlook, they [RBNZ] wisely chose to play with a straight bat,” Smith said.

ASB is expecting the first OCR cut in November but thinks monetary policy settings will still remain on the restrictive side of neutral for a year or so beyond that.

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