Traders say a Reserve Bank interest rate cut next week is a foregone conclusion and a minority are betting the stubbornly high kiwi dollar is a big enough threat to its policy targets to prompt governor Graeme Wheeler to reduce the official cash rate by 50 basis points in one move.
The overnight index swaps market has priced in an 86 percent chance the OCR will be cut a quarter point to 2 per cent at the August 11 review and a 14 per cent chance of a steeper cut to 1.75 per cent, according to Reuters data. Wheeler signalled a rate cut was imminent in his unscheduled economic update last month saying "further easing was likely".
Economists do expect Wheeler to ease by 50 basis points but to spread out the easing, with a 25 basis point reduction next week and a second cut in November.
"Some in the market are asking whether the RBNZ could choose to cut by 50 bps in August," HSBC Australia and New Zealand chief economist Paul Bloxham said in a note. "We doubt this is likely, as it would give the sense of an emergency situation, which we do not believe New Zealand faces."
The Reserve Bank last cut the key rate by half a percentage point in March 2011 in response to the second Canterbury earthquake that levelled large portions of the city and killed 185 people. Prior to that, the bank made six cuts of half a percentage point or more through 2008 and 2009 in response to the global financial crisis.