OCR will fall further: economists react to shock cut

The Reserve Bank cut the OCR to just 1% yesterday due to growth and international trade concerns, but economists say the policy action will not stop there.

Stephen Toplis, head of research at BNZ markets, said: “Yet again, Governor Orr (and his committee) has shown that they want to get “in front of the curve”. Rather than cut 25 basis points, and indicate that another rate cut was likely, they decided to not pussyfoot around and, instead, throw everything at the market at once.”

BNZ’s markets team predicts the central bank will hold off on further cuts until November, but said “September cannot be ruled out”. He added: “Nor can we rule out interest rates bottoming at lower than 0.75%.”

Toplis questioned whether yesterday’s rate cut would spur business investment or drive economic growth: “If we are right and growth fails to bounce then what will stand in the way of the RBNZ cutting the cash rate to even lower levels than we are now suggesting?”