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(CEP News) - Most economists expect the Reserve Bank of New Zealand (RBNZ) will cut rates by 50 basis points on Thursday (Wednesday night EDT) to 2.50% as the country's global trading partners continue to suffer from recession.
Economists at Westpac said the latest report from the International Monetary Fund indicates New Zealand's trading partners will suffer a 2.8% contraction in growth - much more than what the RBNZ had been expecting. "Forecasts for the Asia-Pacific region, which was previous expected to be relatively resilient, are now being revised down heavily," they said. With the dire outlook in financial markets and the climb in interest rates, there is a strong case for a 50 basis point cut, they said, although there is some possibility of a smaller 25 basis point cut. "We believe the Reserve Bank needs to put its money where its mouth is at this Thursday's OCR review," said Craig Ebert, economist with Bank of New Zealand. In the last monetary policy statement, following a 50 basis point cut, Reserve Bank Governor Alan Bollard said going forward he would assess the need for further cuts against global and domestic economic developments. Despite some improvement in international economic data, and a nice bounce in equity markets, Ebert called the improvement "more of a relief than resolve." He expects the bank to cut by 50 basis points, and to convey it is leaving the door open for further rate cuts. Strategists at Barclays Capital, however, are forecasting a 25 basis point cut, and say such a move will lead to a rally in the New Zealand dollar. The bank needs to keep long-term interest rates down by keeping expectations alive that they'll cut rates further, they said, and they need to leave room to do that. The Reserve Bank of New Zealand will announce its Official Cash Rate at 5:00 p.m. on Thursday (Wednesday night EDT). By Megan Ainscow,
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