New Zealand - Rates may eventually fall below 3%

While today's interest rate cut by the Reserve Bank of New Zealand (RBNZ), to 3.25% from 3.50%, came a bit earlier than we expected, towards the start of the year we were one of the few analysts expecting rates to fall at all. A further cut in rates to our end-year forecast of 3.0% could come as soon as next month. If we are right in thinking that the outlook is weaker than the RBNZ believes, then rates may even have to fall further. The dollar could therefore weaken to US$0.65 or below.