HSBC Anticipates RBNZ’s 50bp Rate Cut in October

On Monday, HSBC Global Research revised its forecast for the Reserve Bank of New Zealand (RBNZ), predicting more significant interest rate cuts in the coming months due to indications of a slowing economy.

The bank now anticipates the RBNZ will reduce its cash rate by 50 basis points (bp) in both October and November, a shift from its earlier expectation of 25bp cuts for those months.

This adjustment follows the results of the Quarterly Survey of Business Opinion (QSBO), which revealed excess capacity in the economy and declining price pressures, indicating that businesses are finding it difficult to transfer increased costs to consumers. This observation is consistent with the RBNZ’s change to a more accommodative stance during its August meeting, when it lowered the cash rate by 25bp to 5.25%, signaling a departure from previous hawkish forecasts.

Analysts noted, “The primary data point this week was the Q3 QSBO, which underscored the persistence of excess capacity and highlighted weak demand as a major concern for businesses. It is crucial to note that easing price pressures were also reported, with firms unable to pass on higher input costs through increased prices.”

Additionally, the monthly selected price indices—a more immediate metric of the consumer price index (CPI)—also point to further disinflation in the third quarter, with headline CPI inflation expected to fall comfortably within the RBNZ’s target range of 1-3%.

The economic landscape prompting these anticipated rate cuts includes a contraction in GDP for the second quarter, a softening labor market, and low consumer and business confidence. While some near-term indicators have shown improvement, overall demand remains weak in the third quarter.

Should HSBC’s prediction of a 50bp rate cut in October materialize, it would lower the RBNZ’s cash rate from 5.25% to 4.75%. However, HSBC recognizes that there is considerable uncertainty surrounding the RBNZ’s decision-making, particularly given the central bank’s swift transition from a hawkish to a more dovish stance earlier this year.