February 21, 2025
Key Developments
The Reserve Bank of New Zealand delivered the expected 50 basis point cut on Wednesday, acknowledging the economy's need for support. More significantly, they have lowered their Official Cash Rate (OCR) forecast track, signalling an accelerated easing cycle that aligns with market expectations and moves closer to our many economists 3% terminal rate projection.
Rate Path Forward (see chart)
April 2025: 25bp cut expected
May 2025: Additional 25bp cut to reach 3.25%
Beyond May: Gradual reduction to 3.1% through 2028 (effectively 3%)
Risk assessment: Downside risks predominate
Economic Context
The current 3.75% OCR remains restrictive, sitting above the neutral rate of approximately 3%. This restrictive stance is difficult to justify given:
Elevated unemployment
Inflation stabilised within target range
Economy emerging from recession
Positive Outlook
With inflation successfully managed, attention now shifts to economic recovery. The transmission of monetary policy should be relatively swift, as 81% of mortgages are fixed for less than one year. It is expected that the following will occur:
Economic recovery gaining momentum through 2025
Housing market strengthening all be it shallow
Stronger economic performance in 2026 compared to 2025
Forward View
The improving confidence indicators should translate into tangible economic benefits, including enhanced business activity, profitability, employment, and capital investment. Confidence in the recovery trajectory has strengthened considerably.
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Blog no. 3.
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