Introduction to New Zealand’s Economic Situation
New Zealand’s economy has been facing challenges, and the recent 0.9% fall in GDP for the June quarter has raised concerns. Kiwibank economists, who have been advocating for a decrease in the Official Cash Rate (OCR) to 2.5%, are now suggesting that a further reduction to 2% may be necessary.
Current Economic State
The Kiwibank economists, including chief economist Jarrod Kerr, senior economist Mary Jo Vergara, and economist Sabrina Delgado, have expressed their concerns about the current state of the economy. They believe that the current monetary policy settings, with a 3% cash rate, are not sufficient to support the economy. The economists have been pushing for a 2.5% cash rate for over two years, and now they think it’s essential to consider a further decrease.
The Need for a Decrease in OCR
The economists argue that the economy is not recovering, and it’s saddening to see it still contracting after last year’s deep recession. They point out that the economy has shrunk a further 0.6% over the year, indicating that the current policies are not effective. The Kiwibank team believes that a decrease in the OCR to 2.5% is necessary, and they expect a 50 basis point cut next month, followed by a 25 basis point cut in November.
A Further Decrease to 2%
Now that the 2.5% OCR seems likely, the economists are considering a further decrease to 2%. They think there’s a 50/50 chance that the economy may require further support, and they believe that the Reserve Bank of New Zealand (RBNZ) should be prepared to take further action. The economists suggest that the RBNZ should keep its "foot firmly on the accelerator" to support the economy.
Factors Affecting the Economy
The economists identify several factors that will influence the economy’s recovery, including the housing market, consumer confidence, and business confidence. They believe that these factors will play a crucial role in determining whether a further decrease in the OCR is necessary. The economists think that the summer period will be an important time for monitoring the data and assessing the recovery.
Conclusion
In conclusion, New Zealand’s economy is facing significant challenges, and the Kiwibank economists believe that a decrease in the OCR is necessary to support the recovery. While a 2.5% cash rate seems likely, the economists are now considering a further decrease to 2%. The upcoming months will be critical in determining the direction of the economy, and the RBNZ should be prepared to take further action to support the economy. The Kiwibank team hopes that the data will indicate a need for further support, and they believe that a decrease in the OCR to 2% may be necessary to stimulate the economy.
