- Economists expect a 25 bps rate cut on Thursday
- Rate cut also fully priced in money markets
- Policy announcement August 11
WELLINGTON, Aug 8 (Reuters) - New Zealand's central bank is expected to cut interest rates on Thursday and signal more easing to come as it continues to grapple with low inflation and a high New Zealand dollar.
Twenty-four of 25 economists polled by Reuters expect the Reserve Bank of New Zealand to cut rates to a record low 2.00 percent this week, with only one expecting it to remain on hold. [NZ/POLL]
"If the RBNZ remains fully committed to pushing consumer price index inflation higher then it has absolutely no option but to cut the cash rate this Thursday, pencil in at least one further reduction, and commit to ongoing rate cuts if need be," said BNZ Head of Research Stephen Toplis.
New Zealand, like most of the Asian region is struggling to jump-start inflation as too many goods chase tepid demand.
Inflation has been below the central bank's 1 percent to 3 percent target range since June 2014 and is currently running at 0.4 percent.
Unlike many central banks globally, however, New Zealand has been reluctant to cut rates given an overheated housing market.
In July, however, it paved the way for further rate cuts by announcing new curbs on mortgage lending aimed at damping down the housing market .
On another front, the central bank is also keen to see the currency lower. The kiwi, as the New Zealand dollar is known, is currently nearly 5 percent higher on a trade-weighed index basis than the central bank expected it to be in the June quarter.
Westpac Bank Senior FX Strategist Imre Speizer said, however, "it will take a quite strong easing bias" to get the kiwi to move significant lower given that Thursday's rate cut is fully priced in.
"The key question from the RBNZ’s OCR (official cash rate) review and monetary policy statement is not if it cuts, but how many more OCR cuts the RBNZ signals," said ASB Chief Economist Nick Tuffley.
Economists are expecting the central bank to cut at least once more after Thursday and then see rates remaining steady at 1.75 percent, according to the median in the poll. Several, however, say that won't be enough.
"In order to address the issue of persistently low underlying inflation we think that the RBNZ will have no choice but to cut interest rates to 1.50 percent, or lower, next year," said Paul Dales, chief Australia & New Zealand economist for Capital Economics.
