RBNZ Chief Economist Paul Conway stated in a speech today that Official Cash Rate at 4.25% remains “north of neutral”. The central bank estimates the neutral rate between 2.5% and 3.5%.
“Easing domestic pricing intentions and the recent drop in inflation expectations help open the way for some further easing,” Conway added.
However, Conway emphasized a cautious approach, noting that policymakers will “feel our way” as rates approach neutral. RBNZ will continuously reassess its neutral rate estimate, adjusting based on economic conditions.
If neutral is underestimated, stronger-than-expected activity and inflation would signal a less restrictive policy than intended, prompting recalibration, he added.
The central bank expects potential output growth to range between 1.5% and 2% annually over the next three years, reflecting a lower economic “speed limit.” This weaker outlook stems from sluggish productivity and reduced net immigration, limiting long-term economic capacity.