RBNZ: 50bps cut, more to come – Standard Chartered

RBNZ cuts OCR to 3.75%, signalling more front-loaded easing. We see 50bps of cuts in Q2 (25bps prior), 25bps in Q3 (unchanged), and a pause in Q4 (25bps cut prior). Output gap deteriorates sharply, reinforcing the case for further easing in 2025. NZD reaction muted, with markets largely pricing in the move, Standard Chartered’s analysts Bader Al Sarraf and Nicholas Chia note.

‘Orr’chestrated easing

“The Reserve Bank of New Zealand (RBNZ) delivered a widely anticipated 50bps cut, bringing the Official Cash Rate (OCR) down to 3.75%, in line with our expectation and the RBNZ’s prior forward guidance. However, the notable dovish shift came from the updated OCR track, which now suggests a faster path towards mid-neutral (3%) by year-end, at 3.1%, compared to the previous projection of 3.6% in November. The revised track signals another 50bps of cuts in Q2 (likely split as 25bps in both April and May), followed by a 25bps cut in Q3 and a potential pause in Q4.”

“Inflation projections reflect diverging trends between tradables and non-tradables. The RBNZ revised tradables inflation higher, citing NZD depreciation, rising oil prices and trade uncertainty, while non-tradables inflation is expected to ease further due to soft domestic demand and a cooling labour market. Growth forecasts remain weak, with the output gap widening further into negative territory. We believe the market reaction was measured, as front-loaded easing was already priced in.”

“While we maintain our terminal rate forecast of 3% by year-end, we adjust our forecast to now factor in an additional 25bps cut in Q2, bringing our end-Q2 forecast to 3.25% (vs 3.50% prior). Our Q3 call remains unchanged at 25bps, bringing the OCR to 3.00% (vs 3.25% prior), followed by a likely pause through year-end. The risk remains that the RBNZ could either accelerate the pace of easing if growth weakens further or slow the trajectory if inflation proves more persistent.”