Weak inflation means negative OCR: Kiwibank

Jarrod Kerr

Kiwibank economists predict a major 75bps cut to the official cash rate following weak inflation data. 

Figures show inflation came in at 0.7% in the September quarter, weaker than expected, and likely to be a concern for the central bank as it attempts to revive the economy. 

The Kiwibank team, led by Jarrod Kerr, said: "Our borders are closed, and the summer months will be challenging for businesses reliant on international arrivals. With inflation starting from a weaker position, and likely to weaken from here, the RBNZ will feel emboldened to act. And in conjunction with a bank funding for lending programme, we expect the RBNZ to move aggressively and cut the OCR by 75bps in February to take the cash rate to -0.5%."

The bank does not believe negative rates will be effective, but says the Reserve Bank will opt for the unconventional monetary policy as the economic crisis deepens.