Photo: RNZ
The Reserve Bank governor is confident inflation is down, and will stay down, but says he's not hitting the accelerator just yet, despite Wednesday's cash rate cut.
The central bank cut the official cash rate by 25 basis points to 5.25 percent, the first cut in more than four years.
Governor Adrian Orr was accused of a major flip-flop but told RNZ people should expect more cuts, to as low as 3 percent by the end of 2025.
"We are confident in both current and the near term outlook for consumer price inflation, we estimate it to be around 2.3 percent for the year ending this September quarter, the quarter we're currently in, and for it to remain near the midpoint our 2 percent target range over time."
That meant they could reduce the level of restraint, Orr said.
"We aren't actually stepping on the accelerator, we're actually just taking our foot off the brake."
RBNZ would then watch price setting behaviour closely over the coming months to determine the pace of future cuts, he said. But there would be further cuts.
"Our forecasts are for a reasonably aggressive series of interest rate cuts throughout the next calendar year. We finish around 3 percent for the Official Cash Rate by end 2025.
"We are comfortable easing but we don't want to let the bull back out of the paddock having taken so long to get it here."
Reserve Bank governor Adrian Orr. Photo: RNZ / Dom Thomas
Orr said net migration gains had been necessary to bolster labour market shortages, and consumer spending per capita was actually well down.
He also denied the government's policies to cut spending and provide tax cuts had any effect on its decision saying the effect of the government's budget was neutral.
There was a "very low risk" lower interest rates would re-inflate domestic inflation, but Orr said core inflation measures were all trending down.
And given the high number of mortgage holder on shorter fixed term rates, the cash should flow into people's pockets reasonably quickly, Orr said.
'No risk-less decision'
ANZ's chief economist Sharon Zollner told Morning Report the unusual nature of the recession meant the recovery could also be unusual.
She said Wednesday's cut proved the RBNZ was not afraid to change its mind and that whatever it did would have carried risk.
"Obviously the economy is in a pretty dark place at the moment.
"It's not all doom and gloom, thank goodness, we just have to hope that inflations got enough downward momentum that the Reserve Bank stays confident that it's going all the way to where it needs to be," she said.
"Now we're all watching the data closely to see how it goes from here."
Change in consumer confidence needed
Retail NZ chief executive Carolyn Young told Morning Report the move was good news for the sector which was struggling.
Though it would depend how long it took before people felt they had enough money to start spending, she said.
"We've started what we've needed to see which is a turn in the economy and looking for a change in the confidence of consumers and that's going to come through consumers having more funds in their pocket and being more confident about where the economy is heading.
"This is the first indicator of getting that turn around in that confidence," she said.
"Were hoping things turn around before the last quarter and we have a boost in the November/December period."
