New Zealand remains in a prolonged recession. RBNZ needs to get cash rate below 4%, asap.

I posted earlier on the data from New Zealand showing not quite as bad economic contraction as expected.

But, still contraction:

• New Zealand Q2 GDP -0.2% q/q (expected -0.4%)

Responses:

• What’s coming up from the Reserve Bank of New Zealand after the weak NZ GDP data
• New Zealand GDP data showed a contraction, not as bad as expected – recap

This now via analysts at KiwiBank, pulling no punches in this forthright note. Good stuff.

In brief:

• New Zealand remains in a prolonged recession.
• Forward-looking indicators suggest that the September quarter will record another contraction.
• That makes the recession two years old.
• Policy settings are restrictive, but more interest rate cuts are coming. High interest rates have hurt, and the economy demands more easing.

More specifically for the RBNZ:

• the RBNZ are responding – late, but in earnest
• A rate cut in October is as close to a done deal as you get. In fact, we’d argue the only discussion should be on delivering 25 or 50. We’d advocate 50. And again, 50 in November.
• The RBNZ’s first 25bp cut in August marked the start of a move towards 2.5-to-3%. That’s at least 250-to-300bps.
• We argue the RBNZ needs to get the cash rate below 4%, asap. It takes up to 18 months for rate cuts to filter through the economy.
• Get moving…

This article was written by Eamonn Sheridan at www.forexlive.com.