Mark Smith: ASB Senior Economist on the drop in inflation and potential interest rate cuts

Early Edition with Ryan Bridge

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Rate cuts could arrive early as next month, banks are predicting.

Inflation fell to a 3-year low yesterday, reaching 3.3% in the June Quarter.

Although that falls outside of the Reserve Bank’s target band of 1-3%, banks have reacted positively to the move.

ANZ have cut their three year home loans rates to 6.35% and the two year rates to 6.49%.

ASB Senior Economist Mark Smith told Ryan Bridge they’re predicting two rate cuts before Christmas: a 25 bps cut in October, and another in November.

He said that factors such as pricing pressures, external inflation, and pressures in the housing market are beginning to ease, which the Reserve Bank can use as a positive sign that inflation will remain low once rates are cut.

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