WELLINGTON (Reuters) - Westpac Bank (WBC.AX) on Thursday forecast New Zealand’s central bank would cut rates twice this year as headwinds for the economy from growing business pessimism compounded.
Economists at Westpac said in a research note they expected the Reserve Bank of New Zealand (RBNZ) to cut the official cash rate by 25 basis points from its current record low of 1.25% in August, as previously forecast, and added the prediction of a second rate cut in November.
The more dovish outlook was largely due to domestic factors, according to Westpac.
“Low business confidence is translating into slower hiring, and the forestry downturn could cause job losses,” said Dominick Stevens, chief economist for New Zealand at Westpac Bank.
“There is some risk the RBNZ could deliver the cuts more rapidly, in August and September, depending on how weak the labour market gets,” he added.
New Zealand’s business confidence sank to its lowest level in nine years in the second quarter, according to a survey by economic think tank NZIER, as firms struggled with higher costs they were unable to pass on fully to customers.
Export prices for logs, an important New Zealand export in a sector that constitutes a major employer, had dropped by a quarter in the past month, according to Westpac
Four other economists polled by Reuters expected the bank to hold rates steady at its next meeting, with half expecting the bank to cut to 1% by the end of the year.
Reporting by Charlotte Greenfield; Editing by Peter Cooney