Real possibility New Zealand’s central bank will start cutting interest rates this week By Reuters

WELLINGTON (Reuters) – New Zealand’s central bank may cut interest rates on Wednesday, a full year earlier than its own anticipated guidance, as inflation slows, unemployment rises and economic growth remains sluggish, sending markets reeling.

While a Reuters poll of 31 analysts last week found 19 respondents expected the Reserve Bank of New Zealand (RBNZ) to hold the cash rate constant at 5.5%, a dozen expected the bank to cut by 25 basis points and many recognized that it was a line. appeal to the central bank in any case.

Markets priced in a 76 percent chance of a cut, increasing their bets after the central bank’s survey on Thursday showed inflation expectations fell to a three-year low.

The RBNZ was one of the first central banks to withdraw monetary stimulus from the pandemic period and kept the cash rate at 5.5% from May 2023 to reduce historically high inflation.

The prospect of a rate cut by the Reserve Bank when it meets on Wednesday is in stark contrast to forward guidance published in May, which indicated lower borrowing costs were not likely before mid-2025.

“The New Zealand economy is contracting, spare capacity is growing rapidly and the unemployment rate is some way off peak. This eases pressure on inflation and, most importantly, lower wage growth will help lower stubborn non-tradable inflation,” Bank of New Zealand head of research Stephen Toplis said in a note.

“We think all the boxes have been ticked to allow the Reserve Bank to cut its cash rate now,” he added.

Even if the bank opts to keep interest rates steady, many analysts expect its forecasts to be revised. All but two of the 31 economists polled by Reuters expect the central bank to start cutting interest rates this year, with most expecting the cash rate to be 5.0 percent by the end of the year.

Westpac industry economist Paul Clark said in a note that while the central bank is expected to keep the cash rate at 5.5%, it is likely to position itself for rate cuts later this year and also “to make significant downward revisions to the cash rate track for 2025”.