Completing A Hattrick. The RBNZ Goes 50bps Again, With More Cuts To Come.

• The RBNZ delivered on expectations, cutting the cash rate 50bps to 3.75%. With inflation tamed and expectations anchored, more rate cuts are on their way.
• The RBNZ’s OCR track, which provides guidance on future policy moves, was lowered and pulled forward. There was a welcome drop to 3.14% by year-end. We see risks tilted to the downside.
• Our view remains the same. We have rising unemployment and inflation rangebound near target. Job done. Release the brake and put it in neutral. If anything, the RBNZ may need to stimulate, by putting the economy in drive, tapping the accelerator, and cutting below 3%.

Yes, the RBNZ cut 50bps today, as expected. RBNZ officials have proven to be nibble, again, and thankfully. The economy needs help.

But the main message from today's MPS is the lowering (again) of the OCR track. The RBNZ are signalling more cuts, sooner. The RBNZ has effectively matched market pricing, and moved closer to our long-held view of a 3% terminal rate. There's only 10bps between us now. It pays to be stubborn. And we agree with the move. We're all on the same page, now.

Here's the key dates: the OCR track implies a 25bp cut in April and May to 3.25%. And then there is a welcome drop to 3.14% to end the year. And the track flatlines at 3.1% out to 2028. That's the RBNZ's way of saying there's a 60% chance they go from 3.25% to 3%. You know, it's kind of needed, but we not quite there yet. In time, they should get to 3%. And the risks are to the downside.

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We must point out that a 3.75% cash rate remains well above estimates of neutral - which are close to 3%. So interest rates remain at levels that restrain demand. And after a severe recession, it's hard to justify. We have rising unemployment and inflation rangebound near target. Job done. Release the break and put it in neutral. If anything, the RBNZ may need to stimulate, by putting the economy in drive, tapping the accelerator, and cutting below 3%.

The REALLY good news is that RBNZ has tamed the inflation beast. And it is time to drag the economy out of recession. With more interest rate cuts on the way, we see the economy recovering in 2025. Rate cuts are feeding through fast, with 81% of mortgages fixed for less than a year. That points to a firmer recovery in the second half of 2025. Along with gains in the housing market. And of course, 2026 is looking better than 2025, which will be a lot better than 2024.

It's a confidence game. It's all about confidence. And we expect the lift in confidence to persist, and eventually feed into activity, profitability, hiring and investment. We're more confident in the recovery.

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