“Given the RBNZ in February clearly signalled confidence that they’d be cutting 25bp[s] this month, the burden of proof is on finding reasons not to deliver,” ANZ chief economist Sharon Zollner said.
“We don’t think the threshold for either a pause or a larger cut has been cleared.”
This will be the first monetary policy decision by the RBNZ since Adrian Orr’s resignation and abrupt departure last month.
“Given the continuity provided by the Committee structure (the governor is just one of seven MPC members), we don’t expect any monetary policy implications in the near term,” Zollner said.
“Indeed, if anything, the committee’s bias might be to not rock the boat.”
The decision should be a straightforward one despite being made in an “increasingly less straightforward world”, ASB chief economist Nick Tuffley said.
Domestic developments had been largely in line with the RBNZ’s outlook, he said.
“But it’s hardly a bed of roses. Donald Trump’s tariff bad medicine, including this week’s ‘reciprocal tariffs’, have created much more uncertainty about the path of New Zealand growth and inflation.”
On the one hand, future inflationary pressures could be exacerbated by US tariffs, global retaliation that pushes up production costs or a depreciation of the New Zealand dollar, he said.
On the other hand, New Zealand could face disinflationary impacts from weaker global growth, flow-on effects to domestic activity, and the offloading on New Zealand of productive capacity formerly geared towards serving the US market.
It would take more time to see clearly which trend dominated.
“Our suspicion is the negatives are more likely to dominate. We expect the RBNZ to cut the OCR again in May by 25bp[s],” he said.
“Beyond that, the outlook is flying more than usual on a wing and a prayer, so the May MPS will potentially have a more challenging balancing act.”
The point of interest remaining in the domestic economic story was when the RBNZ would stop cutting, BNZ head of research Stephen Toplis said.
“In February, it implied a cash rate of 3% would be the low in the cycle. We doubt the bank will do anything to suggest its expectation has changed.
“But, equally, the absence of any interest rate track accompanying the Monetary Policy Review means there will be little signal on this anyway.”
For now, BNZ is sticking with its forecast of a 2.75% low.
KiwiBank economists said they still expected the Kiwi economy to keep gradually recovering over the second half of this year.
The most recent timely data was already showing promising signs of a turnaround in activity.
“Green shoots are emerging. However, we still see risks as skewed to the downside for the economy; risks stemming from offshore,” they said.
“Between escalating geopolitical tensions and growing risk of geoeconomic fragmentation, the global outlook is shrouded in uncertainty.”
Fears of a global growth slowdown were building, given the level and scope of the tariffs proposed by the US.
“Confusion still surrounds the newly announced US reciprocal tariffs, but first impressions are that they’re on the rather aggressive side of expectations,” they said.
“New Zealand may be getting off relatively lightly, with the blanket 10% tariff applied. But a heavier hand was dealt on China (54%) and other Southeast Asian countries.”
The RBNZ would likely acknowledge those global risks.
“The beginnings of our economic recovery — as fragile as it is — has largely been driven by the external sector,” Kiwibank said.
“A disruption to global trade does not bode well for the Kiwi ‘small, open’ economy.
“An escalation of the tariff trade war, should countries retaliate, could stall our expected economic recovery.”
Such a scenario would require the RBNZ to push the cash rate below 3%, they said.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist and also presents and produces videos and podcasts. He joined the Herald in 2003.
