The Reserve Bank is due to give an update to the official cash rate today, although it is only a short written update. Photo: RNZ
There is a real risk that the Reserve Bank has slowed the economy too much, economists say - and all eyes will be on whether there is any acknowledgement of the extent of the downturn in its Wednesday update.
It will issue an update to the official cash rate (OCR) - although July's is only a short written update, not the full statement of May and August.
Economists say the data since the May update - at which the Reserve Bank surprised many people by discussing the possibility of an OCR hike and increasing its forecast track - had been grim. But whether this will warrant a mention is not clear.
Independent economist Shamubeel Eaqub said he would look for any indication that the Reserve Bank was winding back its "sadistic" policy approach.
"The economy is grim. They need to signal they have observed the weakness... and what the steps are for them to move towards easing."
He said other central banks around the world had acknowledged their economies were weak and that inflation pressure was easing, even though they were not completely confident it was back to acceptable levels.
"I would expect the same sort of message from the Reserve Bank, especially given our economy is a hell of a lot weaker than Australia, the US… the economy is way weaker now than it was even six months ago."
He said there was a synchronised story from businesses about the extent of the slowdown. The impact of job losses could be very significant given the levels of debt that some people had taken on during the Covid period.
At Kiwibank, Sabrina Delgado said her team had long highlighted the risk that the Reserve Bank had been too harsh.
"The risk for them to do too much remains very much at large if they hold out on cuts for too long. We need cuts sooner rather than later to avoid severe economic scaring from overly restrictive monetary policy. Especially given the long lags of monetary policy. Monetary policy works with a 12-to-24-month lag. So, policy today is aimed at the end of next year. Hence our call for cuts in November."
She said she would be looking for an acknowledgement of the recent weak data, especially the NZIER Quarterly Survey of Business Opinion - "but no matter which one you looked at it, it's pretty woeful. I'm expecting them to refer to that collapse in business confidence."
But given it was a "stepping stone" update between the May and August decisions, she said it was unlikely that it would change much in its tone and might say the economy was performing as expected.
ANZ senior economist Miles Workman said it was possible that the Reserve Bank would acknowledge the weakness in recent data.
But he said the bank might not want to do that ahead of next week's inflation update. Domestic inflation has been surprisingly difficult to bring down.
"Any comment on the impacts of fiscal policy will be of interest given this is the first meeting after Budget 2024. Our take is that the change in fiscal settings is not a game changer for the inflation outlook, but the Reserve Bank will come to their own conclusions on that."