The Reserve Bank of New Zealand (RBNZ) will have to cut interest rates close to zero to give the economy a much-needed boost and to meet its inflation target, ANZ Bank says.

The bank is forecasting the RBNZ will cut the official cash rate three more times with 25 basis point reductions in November, and in February and May next year.

That would take the OCR to 0.25 percent from its level of one percent.

ANZ chief economist Sharon Zollner said the headwinds buffeting the economy were getting stronger, and that would need lower interest rates.

“The near-term indicators are clearly pointing to growth continuing to slow over the second half of this year.

“The Reserve Bank’s forecasts from August on the other hand show the economy was going to pick up and it’s just not looking like it’s going to happen.”

Zollner said the RBNZ’s 50 basis point cut last month had resulted in bank lending rates falling, and was a factor in the decline of the New Zealand dollar.

But she said the central bank would need to do more.

“The Reserve Bank needs the New Zealand economy to run hot…and in this global environment, with firms as downbeat as they are, that’s just a really difficult thing to engineer.

“And so an OCR of one percent probably isn’t actually going to do it in this environment.”

However, Zollner said there was no reason for the New Zealand economy to go into recession because commodity prices were strong, the population was still growing, the labour market was tight, and there was added support from the lower currency and interest rates.

Official numbers for economic growth are due out in two weeks with expectations the annual rate will fall close to two percent from 2.5 percent.

This article was originally published on RNZ and re-published with permission.

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