With New Zealand’s real GDP having plunged last quarter, the output gap is now at its most negative level since the Global Financial Crisis. The excess capacity in the economy will exert downward pressure on inflation, causing it to undershoot the midpoint of the RBNZ's 1-3% target next year. Against this backdrop, we now expect the Bank to cut rates to 2.25% by year-end, down from our previous forecast of 2.5%.
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