“Our view is that the cash rate should be cut 25 basis points per meeting, following the 50 in February, until such time that the bank thinks it’s done enough.”
In theory, that should mean the cash rate falling to a stimulatory level that is below what is deemed as “neutral”, he said.
The big debate, of course, is where neutral is.
Toplis notes that a speech by RBNZ chief economist Paul Conway this month confirmed it sees neutral as being in a 2.5% to 3.5% band.
That meant a working assumption of 3% was a good bet, he said.
“On this basis we have a low in the cash rate of 2.75% pencilled in.”
There are a range of views on where the OCR will land this year, with the economists taking a less doveish outlook than BNZ.
Westpac chief economist Kelly Eckhold is projecting we’ll end 2025 with the rate at 3.25%, with a “terminal rate” of 3% for this cycle.
“The bank’s short-term economic growth projections may be revised down while the medium-term growth path may be revised up modestly with the lower exchange rate,” he said.
“The RBNZ will likely note significant risks associated with global trade policies, although few conclusions will be drawn given the significant uncertainties.”
The most likely “doveish” scenario was the RBNZ signalling the intention to move the OCR to neutral more quickly, forecasting a 3% OCR by mid-2025, he said.
“This would signal a high chance of a further 50-basis-point [bps] cut at the April review.”
But ANZ is even more cautious.
Chief economist Sharon Zollner is forecasting that the RBNZ will hit the pause button with the rate at just 3.5%.
“Barring significant downward data surprises, this is very likely to be the last outsized cut,” she said.
“We are forecasting just one more cut after next week: a 25bps cut in April to take the OCR to a trough of 3.5%.”
However, given the RBNZ’s central estimate of neutral at 3%, the risks were currently tilted towards the OCR going lower than that, she said.
“Even if neutral is in fact higher than the RBNZ estimates, it would take time for that to become evident. That means neutral isn’t a risk so much for where the OCR troughs as it is for the timing of the eventual kickoff of the next hiking cycle.”
There’s a good chance the OCR track is left unchanged, said KiwiBank chief economist Jarrod Kerr.
That track, which suggested further cuts to 3% this year followed by a pause until 2027, was unlikely, he said.
“Why cut to 3.5%, and then wait (an eternity in markets) to cut to 3% two years later?” he said.
“We argue the case not to muck around. Cut to 3%, a neutral setting, and be on the watch to move into stimulatory territory if the trade wars bite us.
“Get to neutral and get the economy moving.”
Broadly though, the RBNZ’s easing cycle was getting closer to the end, said ASB chief economist Nick Tuffley.
Even if rates fell to 3% this year, there was a limit to how far fixed mortgage rates could fall from here, he said.
“The risks are no longer one-sided: the RBNZ might not cut the OCR as far as markets already anticipate, and Donald Trump has at times pushed interest rates up,” he said.
“The sheer volume of people looking to fix their mortgage rate soon could in itself push interest rates higher if everyone tries to run for the door at once and puts pressure on the wholesale rates that banks rely on for hedging.”
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.
