Gloomy economic data could see official cash rate cut.

The bad news: The headlines have spoken – “GDP: It’s official – we’re in recession” and “New Zealand slips into double-dip recession amid rate hikes”.

Better news: The Reserve Bank has kept the official cash rate (OCR) at 5.5% and softened its stance, with some forecasters suggesting that it might be on track to cut rates sooner than it had previously indicated.

Reserve Bank (RBNZ) Governor Adrian Orr indicated that the economy had “evolved broadly as anticipated by the committee”. He also stated that core inflation and most measures of inflation expectations had declined, and that risks to the inflation outlook had become more balanced.

Passed peak inflation, but is it low enough?

The annual inflation rate in New Zealand has eased to 4.7% – the lowest reading since the second quarter of 2021.

However, headline inflation remains stubbornly above the 1-to-3% target band, limiting the Reserve Bank’s ability to “tolerate upside inflation surprises” – meaning their position on interest rates would likely change if inflation crept higher.

Inflation is forecast to settle within a 1-3% band by September 2024, hitting the 2% mark by the end of December 2025. Many banks expect it will rest under 3% before the end of the year – a trend ASB bank expects will encourage the RBNZ to cut the OCR in November.


While a sputtering global economy is expected to slow further during 2024, sucking oxygen from the country’s import price inflation, central banks around the globe may keep policy interest rates at restrictive levels (higher) for longer to ensure inflation targets are met.

The Reserve Bank will be watching. And it’s worth noting that it was one of the first central banks to hike interest rates when pandemic-fuelled inflation reared its head. Will it be one of the last to cut rates? Quite possibly, you consider that we’re losing the inflation-reversing race. New Zealand’s annual inflation rate remains higher than a host of other countries, including Australia (4.1%), UK (4%), US (3%), Canada (2.9%) and Europe (2.8%).

Inflation vs growth

One professional observer, New York-based Aurora Macro Strategies chief economist Dimitris Valatsas, who visited New Zealand last month, noted a slight divergence in positions held by the Reserve Bank and the US Federal Reserve.

According to Valatsas, the Reserve Bank’s mandate had returned to focus solely on inflation, from a previously dual mandate that also included maximum sustainable employment. The change means the bank only has one lever to pull to adapt to economic conditions, leaving it without a mandate to stimulate growth.

The suggestion is that the differing positions will see a divergence in the pace and scale at which economies start to see rates fall. Will New Zealand be slower on the uptake?

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