SunLive - Will interest rates finally be cut today? - The Bay's News First

Expectations are building that the Reserve Bank will cut the official cash rate on Wednesday for the first time in more than four years.

Wholesale interest rates have been falling in recent weeks as financial markets expect the first cut to the official cash rate since March 2020.

The Reserve Bank started increasing the cash rate in late 2021 in response to high inflation, with the OCR reaching its current peak of 5.5 per cent in May last year.

However, in recent months, economic data shows inflation slowing, unemployment rising and economic growth going sideways.

Not all economists are convinced though, a Reuters poll of 31 analysts shows 19 expect the cash rate to be held steady.

ANZ's chief economist Sharon Zollner is among those expecting the OCR to hold.

She says it was only May when the Reserve Bank said it didn't expect to cut rates until August 2025.

"We suspect that they suspect that in the fullness of time it will be shown that actually cutting now would be the right thing to do, but it doesn't actually necessarily follow that that's the best strategic option right now."

They leave themselves with more options if they acknowledge the data has turned and wait to cut, says Sharon.

"It wouldn't be popular not to cut rates today, obviously people are really struggling, the economy is doing it pretty tough.

"But we do need to remember this is the plan, this is the first deliberate recession I've ever seen."

Loan Market director Bruce Patten tells Morning Report he'd love to see the OCR drop today, but also doesn't think it will be.

"It will go against everything they've been saying and doing the last few years so unfortunately I think we're probably on hold until the next announcement in October."

Banks are already factoring in rate cuts, he says.

"The banks are still holding some very good margins though so they can afford to bring them down a little but more than they have so I'd like to see them help some of their homeloan customers out.

"I expect that everybody will move down today regardless of whether there is a cut or not."

Bruce says there is a lot of hardship at the moment with people struggling to get between paydays.

The Reserve Bank will announce the Official Cash Rate at 2pm on Wednesday. The current rate is 5.5 percent. The Reserve Bank had previously indicated it wasn't likely to drop until 2025. But business leaders and economists now think it's likely they'll move sooner as inflation slows and unemployment rises. Most banks have been pre-empting lower rates with drops in their lending rates already.

-RNZ.