Rabobank Analyst Anticipates Economic Relief with Easing Inflation and Potential Interest Rate Cuts
Source: The DairyNews
Rabobank's senior market strategist, Ben Picton, has indicated that economic relief may be on the horizon as inflation expectations ease and interest rates are poised to decrease later this year.
Picton shared these insights at a recent event for Rabobank's food and agribusiness clients in Waikato, emphasizing the bank's belief that the Official Cash Rate (OCR) has reached its peak at 5.5%. According to Picton, the Reserve Bank of New Zealand (RBNZ) is likely to implement two rate cuts in the second half of the year.
Key factors influencing this forecast include a recent downturn in economic activity, increasing unemployment pressures, weakened demand for goods and services, and elevated costs resulting from disrupted trade due to the Red Sea conflict with the Iranian Houthis.
Picton noted that New Zealand's economy is transitioning and rebalancing after the constraints imposed by the COVID-19 pandemic. Despite a technical recession in early 2023 and another contraction in the third quarter of the same year, Picton suggested that the economy is adapting.
Inflation, which stood at 4.7% at the end of last year, remains above the RBNZ's target range of 1-3%. The demand for goods and services has been shrinking since 2022, and any growth in demand exceeding supply could potentially delay rate cuts or prompt further OCR increases.
Despite concerns, Picton highlighted the surprising resilience of the labor market, with unemployment rising at a slower rate than expected. He suggested that a tighter labor market could lead to higher wages growth and increased aggregate demand—something the RBNZ aims to lower.
Picton concluded by stating that Rabobank anticipates the OCR to settle around 3.5% beyond 2024.
Key factors influencing this forecast include a recent downturn in economic activity, increasing unemployment pressures, weakened demand for goods and services, and elevated costs resulting from disrupted trade due to the Red Sea conflict with the Iranian Houthis.
Picton noted that New Zealand's economy is transitioning and rebalancing after the constraints imposed by the COVID-19 pandemic. Despite a technical recession in early 2023 and another contraction in the third quarter of the same year, Picton suggested that the economy is adapting.
Inflation, which stood at 4.7% at the end of last year, remains above the RBNZ's target range of 1-3%. The demand for goods and services has been shrinking since 2022, and any growth in demand exceeding supply could potentially delay rate cuts or prompt further OCR increases.
Despite concerns, Picton highlighted the surprising resilience of the labor market, with unemployment rising at a slower rate than expected. He suggested that a tighter labor market could lead to higher wages growth and increased aggregate demand—something the RBNZ aims to lower.
Picton concluded by stating that Rabobank anticipates the OCR to settle around 3.5% beyond 2024.
