Westpac's Kelly Eckhold adjusts OCR predictions as US-China trade war looms large

Westpac chief economist Kelly Eckhold revised his prediction for the Reserve Bank of New Zealand's (RBNZ) Official Cash Rate (OCR) decision, citing changing global economic conditions. Eckhold now believes the RBNZ will signal its intention to reach a 3% OCR soon, despite previously forecasting a cut to 3.5%.

Market reactions to US trade tariffs imposed on several countries by its President Donald Trump and the latest NZIER Quarterly Survey of Business Opinion influenced Eckhold’s revised forecast. He anticipates the RBNZ will acknowledge the potential need for an OCR below 3% in the future, possibly discussing it further in May.


Days later, Eckhold reassessed his position, acknowledging significant shifts in the economic landscape. He noted market adjustments anticipating a much lower OCR in 2025 due to escalating trade tensions between the US and China.

“The balance of risks has shifted a lot in just one week. Hence, it’s important to update the view,. The news of rounds of retaliation between China and the US imply very elevated global growth risks. And that bodes poorly for the New Zealand outlook," he said.

Before the US tariff announcements, markets projected an OCR slightly above 3% by late 2025. However, current market expectations indicate a 2.75% OCR by October.

The NZIER Quarterly Survey of Business Opinion, a key indicator for the RBNZ, revealed flatter growth indicators than Eckhold had anticipated. While still expecting the RBNZ to cut the OCR to 3.5%, Eckhold highlighted downside risks.

“We continue to expect the RBNZ to cut the OCR 25bps to 3.5% tomorrow. But the balance of risks lies clearly to the downside now.”

Eckhold believes the RBNZ will aim to reach a neutral OCR of 3% quickly, likely signaling this intention in their upcoming statement. The statement may also address the possibility of an OCR below neutral, reserving further discussion for the May Monetary Policy Statement.

He reasoned that the RBNZ would avoid drastic policy shifts after definitively stating a 25bps cut in February. He suggested a significant change could negatively impact interest rate expectations and the exchange rate, both of which have moved favorably.

Eckhold anticipates a more comprehensive update in May, after the release of Budget 2025, acknowledging the potential for varied domestic and global outlooks. He plans to revise his own OCR forecast, currently at a 3.25% trough, during the May Economic Overview, noting clear downside risks.