The swap market priced a 20 percent chance of an OCR cut immediately after the central bank’s recent MPS announcement, but has moved following weak business confidence data.
In its latest weekly update to the market, ANZ said falling business confidence delivered a further blow after the central bank's dovish language last month.
ANZ’s recent Business Outlook Survey indicated falling confidence across the country, with 50% of businesses saying they expected a deterioration in business conditions. ANZ chief economist Sharon Zollner told TMM markets “have definitely moved in response to weak business data”.
ANZ recently indicated an OCR cut was more likely than a hike. The bank's economists reiterated they were “leaning” towards officially forecasting a cut. The economists said the Reserve Bank might be willing to “front foot” a response to slowing growth by cutting rates. They said the central bank would "need to be convinced that the slowdown is real and relatively broad-based, and that extra monetary policy support is therefore warranted”.
However, the bank believes businesses could have overstated their lack of confidence and believes there are still green shoots for the economy. “The primary sector is performing well, particularly agriculture," Zollner said. She added the regions were likely to be drivers of growth in Q2. The bank has upgraded its initial GDP growth forecast for the quarter to 0.8%.
