POLL-RBNZ to hold rates in November and through mid-2024, cut in Q3

Credit: REUTERS/STAFF

By Devayani Sathyan

BENGALURU, Nov 24 (Reuters) - New Zealand's central bank will hold its overnight cash rate at 5.50% for a fourth straight meeting on Wednesday and at least through mid-2024, later than expected prior to October's decision, according to a Reuters poll.

Although inflation slowed to a two-year low of 5.6% in the third quarter from 6.0% previously, it was still well above the Reserve Bank of New Zealand's 1-3% target range, supporting the central bank's case to hold rates.

Persistent and sticky inflation suggests the RBNZ, one of the first global central banks to tighten monetary policy in October 2021, will maintain its hawkish bias for longer and is not likely to start cutting rates before other major central banks.

"We expect the Reserve Bank to carefully leave all its options open and stress the next move in rates could be up or down and they're in data-dependent mode," said Sharon Zollner, chief economist at ANZ.

"Given the most recent data, they're probably a little less worried than they were. But there is still a long way to go, and the Reserve Bank will be very aware that the job is far from done."

All 28 economists in the Nov. 20-23 Reuters poll forecast the RBNZ would hold its official cash rate (OCR) NZINTR=ECI at a near 15-year high of 5.50% at its Nov. 29 meeting.

Of the largest banks in the country, ANZ and ASB expect rates to be on hold through the end of 2024. Bank of New Zealand and Kiwibank believe rates will be held through end-March.

Westpac forecasts one more hike in February with rates held at 5.75% until end-2024.

However, Kelly Eckhold, Westpac's NZ chief economist, said the bank would be reassessing its view after hearing "the message the Reserve Bank tells with their updated forecast next week", given the recent fall in headline inflation.

The poll's median forecast showed a first 25 basis point rate cut to 5.25% will come in the third quarter. Among economists who had a long-term view, 58%, or 15 of 26, predicted at least one 25 basis point rate cut by end-September.

That is one quarter later than predicted in a survey conducted before the most recent policy meeting on Oct. 4.

Interest rate futures are pricing in the first cut in July. 0#RBNZWATCH

The U.S. Federal Reserve is currently expected to cut rates in the second quarter of 2024 while the Bank of England, the European Central Bank and the Reserve Bank of Australia are not seen cutting rates until the third quarter of next year.

"They (RBNZ) will be looking at the domestic labour market and domestic inflation. Those factors that are going to convince the RBNZ they need to start cutting rates...not what the Fed does," said Ben Udy, lead economist at Oxford Economics.

"If next year we receive further evidence inflation is proving even stickier than it currently appears...the RBNZ could increase interest rates further. That's certainly on the table, but we just don't see that as the most likely outcome."

(Reporting by Devayani Sathyan; Polling by Susobhan Sarkar; Editing by Ross Finley, Kirsten Donovan)

((Devayani.Sathyan@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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