The RBNZ goes 50, more to come
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Sit back and enjoy, episode six is jam-packed. We cover a lot – from the RBNZ’s latest policy decision and the growth outlook, to the shape of the yield curve and market pricing.
At the October Monetary Policy Review, the RBNZ announced a 50bps cut to the cash rate to 4.75%. Rate cuts are coming through, thick and fast. And that gives us greater confidence that 2025 will be the year we climb out of recession. Lower interest rates will bolster consumer confidence, and in turn consumer spend. Lower interest rates will pull property investors off the sidelines, and in turn spark life in the housing market. Lower interest rates will also help Kiwi businesses better plan for the year ahead and in turn boost investment. Ultimately, further rate cuts from the RBNZ solidifies our forecasts for a recovery in growth in the second half of 2025.
Later in the episode, we chat to Ross Weston, Head of Balance Sheet. Ross explains what managing the bank’s balance sheet entails, how the yield has evolved in recent months, and how financial markets reacted to the RBNZ’s 50bps cut. The yield curve has steepened in recent months, with now a positive spread between the 2yr and 5yr rates – the first time in over two years. Two forces are at play, influencing either ends of the curve. Short-end rates are being pinned down by RBNZ rate cuts and expectations of more to come. While long-end Kiwi rates have been caught up in the recent sell-off in global yields. It follows extensive US Fed repricing, where bets of big rate cuts have been scaled back significantly. In the episode we also discuss the terminal rate, where we think the cash rate settles and what the market has priced.
Stay tuned: In the next episode, we take a deep dive into the latest inflation data and discuss our forecasts going forward.
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