ASB Predicts 25% Rate Cuts in August, October After July Pause

ASB, a prominent financial institution, has revised its forecast for the Reserve Bank of New Zealand's (RBNZ) monetary policy, anticipating a pause in interest rate cuts in July, followed by reductions of 25 basis points in August and October. This adjustment comes after an earlier prediction that rate cuts would occur in July and August. The decision to pause in July is contingent on the stability of key trade negotiations with the United States and the absence of other significant economic disruptions.

ASB's revised outlook suggests a cautious approach, reflecting the need for careful consideration of global economic factors and their potential impact on New Zealand's financial landscape. The institution's analysis underscores the importance of monitoring international trade dynamics and their influence on domestic monetary policy. Mark Smith, a senior economist at ASB, noted that as the official cash rate in New Zealand approaches a neutral level, a higher standard is required to justify further adjustments. The downward trend in risks indicates the need for monetary policy support, with ASB still expecting the OCR to reach 2.75% by the end of the year.

Although each decision is made in real-time, ASB currently anticipates rate cuts of 25 basis points in August and October. The revised assessment indicates that unless there is a significant deterioration in key trade negotiations with the United States or other compelling evidence that inflation in New Zealand is rapidly cooling, the RBNZ is unlikely to cut rates in July. This cautious stance reflects ASB's commitment to a data-driven approach, ensuring that monetary policy decisions are aligned with the evolving economic landscape.