50 And Not Done. The RBNZ Has More Work To Do. More Cuts Are Required

• We’re gearing up for the RBNZ’s first rate decision for 2025. We’ve waited a long time for more, desperately needed, rate relief. Let’s end the recession, decisively.
• The RBNZ has all but guaranteed a 50bp cut to 3.75% next week. But it’s not about the cut, it’s about the trajectory. And we're focussed on their next move(s). They're saying just one more move (25bps) to 3.5% after next week. We're saying three more moves to 3%. We're stubborn, and we're hoping they're flexible. They had to be very flexible last year.
• The weakness in the economy is clear and demands more attention and less restriction. With all the risks offshore, think Trumpian economics, and the pain still felt onshore, there’s a good argument to be made for taking policy into stimulatory territory – that’s below 3%. Hopefully that’s not needed, but 3.5% is not the prescription we need. Cut harder and faster to recover easier and quicker.

It’s been a long wait… 3 months to be exact. And next week’s decision, with updated forecasts, sets the scene for 2025, at least from the RBNZ’s perspective. As we’ve said, even well before their November meeting, we’re expecting another 50bps cut. And the RBNZ has lined it up beautifully. Adrian Orr said as much. And that's as close to a done deal as you get. It was uncharacteristic to receive such a clear verbal signal. But nonetheless the signal was supported by several members of the Monetary Policy Committee. So 50bps it is. But that’s not the focus.

The focus will be on the projected OCR track, and all the forecast changes that go into it. There’s a good chance the OCR track is left unchanged… frustrating market traders, and us. And there’s an even better chance the OCR track is lowered a little more… reflecting the weakness in the data released of late. A lower track would at least partially appease market traders and economists like us. Because the November track just doesn’t cut it (literally).

Last year, the RBNZ went from talking rate hikes in May to delivering rate cuts in August… as the data came in as expected by us and the market. 2024 was the year the RBNZ did a swift 180… and sprained a few ankles. A bit like attempting a pirouette. We think 2025 will be the year the RBNZ dips a little lower. A bit like a conga line of policymakers bending backwards under a Limbo bar. We hope they get under the 3% notch.

The RBNZ’s current trajectory is unlikely, in our view. Why cut to 3.5%, and then wait (an eternity in markets) to cut to 3% two years later? We argue the case not to muck around. Cut to 3%, a neutral setting, and be on the watch to move into stimulatory territory if the trade wars bite us. Get to neutral and get the economy moving. Cut to 3% and hopefully wait it out for a full recovery. Ultimately, it’s better to act swiftly and decisively (not wait for two years) to be in a position to hike again in two years time. A rate hike would come when the economy has fully recovered... and you want to make sure it doesn’t reheat too much (again). We can’t wait to call for hikes. We’d love to see the economy in that position. But sadly, it’s not. Not even close. More meaningful cuts are required here and now.

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