While the Reserve Bank struggles to get inflation back to its 1-3% mandate, many mortgage holders, investors and householders, are taking the stance of ‘survive ‘til 25’ when interest rate drops will bring some relief.

The economic contraction in the fourth quarter of last year was massive on a per head basis. The economy shrunk 3.1% on a per capita basis in the fourth quarter of last year officially tipping the country into recession.

But Kiwibank and ANZ are still picking the RBNZ to take its foot off the brake and start OCR cuts this November, while Westpac is taking a less rosy view and not expecting interest rate cuts until 2025.

Kiwibank says while it still expects 2024 to be a year of low growth and policy settings to remain aggressively tight, the turning point is on the horizon – it will be the year of central bank rate cutting.

“Offshore central banks like the US Federal Reserve are likely to beat us to it but their move to lower rates will help boost global demand and in turn feed through onto our export volumes,” Jarrod Kerr, Kiwibank chief economist says.

“It shouldn’t be too much longer before the RBNZ can cut rates. We’re penciling in November. And expect to see growth pick up into next year as rate cuts are delivered and stimulate domestic demand.  For now, the theme remains. Survive ‘til 25.”

Westpac isn’t taking such a rosy view. It says while yesterday’s GDP report showed the economy was broadly flat and similar to what it and the Reserve Bank expected, it’s probably not going to move the dial towards earlier interest rate cuts.

The bank’s senior economist Michael Gordon says in this case the figures highlight the degree to which the economy had become overheated in the first place.

He says with other evidence suggesting inflation is not receding quite as quickly as the RBNZ hoped, the central bank might shave off the small upside risk in its most recent OCR projections, but not make a case for interest rate cuts to come sooner. 

“The bottom line is that inflation is still proving to be stubborn in places; the RBNZ’s long-held view that annual inflation will be back below 3% by September is looking like a line-ball call,” Gordon says. 

“Overall, the GDP figures don’t sway our view that OCR cuts are unlikely to come before early 2025. There is also a lot of water still to go under the bridge before the May monetary policy statement.”

ANZ economists expect the slowdown to level out mid this year, at which point the “million-dollar question” would be whether it had been enough to bring inflation into target.

The economists say while New Zealand was in a technical recession at the end of 2023, it “wasn’t your run-of-the-mill, run for the hills recession that has been seen through times of financial market and economic crisis”.

Rather, it’s a policy-induced slowdown that’s part of the necessary transition from too much fiscal and monetary stimulus in the wake of the pandemic.

The bank says a ‘least regrets’ macro stimulus was appropriate at the time, but that doesn’t mean it was costless – this is what paying the piper looks like, and if we don’t pay up, the inflation rates will take over the whole economy.