HSBC Global Research Forecasts Aggressive Rate Cuts by Reserve Bank of New Zealand
In a bold move, HSBC Global Research has adjusted its forecast for the Reserve Bank of New Zealand (RBNZ), predicting more aggressive interest rate cuts in the coming months. The bank now anticipates a 50 basis points (bp) reduction in the cash rate by the RBNZ in both October and November, deviating from its previous projection of 25bp cuts for each month.
The adjustment follows the revelation from the Quarterly Survey of Business Opinion (QSBO) that the economy is experiencing excess capacity and easing price pressures. This indicates that firms are struggling to transfer increased costs to consumers, aligning with the RBNZ's recent shift to a more accommodative stance. The central bank reduced the cash rate by 25bp to 5.25% in August, moving away from its earlier hawkish guidance.
According to analysts, the latest QSBO data highlights persistent excess capacity and weak demand in businesses. Moreover, the survey showed easing price pressures, with businesses unable to raise prices in response to higher input costs. These factors, along with the 'selected price indices,' suggest further disinflation in Q3, with headline CPI inflation expected to fall within the RBNZ's target range of 1-3%.
The economic environment supporting the RBNZ's potential rate cuts includes a GDP contraction in the second quarter, a cooling job market, and subdued consumer and business confidence. While some near-term indicators have shown improvement, overall demand remains weak in the third quarter.
HSBC's forecast of a 50bp rate cut in October would bring the RBNZ's cash rate down to 4.75%. However, the firm acknowledges the uncertainty surrounding the central bank's decision-making process, given its abrupt shift from a hawkish to accommodative approach earlier this year.
Analysis:
The adjustment in the RBNZ's interest rate policy, as forecasted by HSBC Global Research, indicates a challenging economic landscape characterized by excess capacity, weak demand, and disinflationary pressures. For investors and individuals, this could translate into lower borrowing costs, potentially stimulating economic activity but also signaling concerns about the overall health of the economy. Keeping an eye on central bank decisions and economic indicators can help individuals make informed decisions about their finances and investments.
