The RBNZ Cuts, Because It Was The Right Thing To Do. And It’s The Magnitude That Matters Most.

• We were pounding the table in favour of a rate cut today. Now is the time. But we admit, we didn’t think the RBNZ would do it. We thought it was too much of an about face, from their misstep in May. As it turns out, what they “should” do was exactly what they did do. And we applaud the move.
• The OCR track chart highlights the move outwards from Feb to May, and the dramatic 180 degree move today. Today’s OCR track better resembles their OCR track from May last year (after their last hike), and when we started calling for cuts.
• The timing is one thing, but the magnitude is more important. The RBNZ are on a path back towards neutral of around 2.75%. We think they’ll hit 2.5%. That’s 300bps in total. We expect a 25bp cut at every meeting from here, well into 2026.

The rate cut we had to have, but didn’t think we’d get.

The RBNZ has finally kicked off. They did what we didn’t think they’d be comfortable doing, but did anyway. The Governor noted today’s 25bp cut from 5.5% to 5.25% was a “relatively safe first step”. And that’s important. It’s just the first of many steps. We applaud their confidence to cut. And we expect to see many more.

We’ve spent a lot of time talking (and agonising) about the timing of the first move. And now that it is out of the way, we’re going to spend a lot more time talking about the magnitude. And it’s the magnitude that matters most. Today’s move was the first step in a twelve step move. We expect to see twelve 25bp cuts, so 300bps in total. Mortgage rates, business lending rates have a long way to go, south. And so too do savings rates.

It’s the magnitude of rate cuts that impacts business decisions, and household confidence. We forecast, with a much greater degree of confidence, that 2025 will be a better year than 2024, and let’s put 2023 behind us.

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