When it kicked off its easing cycle this week, the RBNZ indicated that it would take a measured approach to cutting rates over the coming months. However, we think the Bank is understating the downside risks to the economy. With spare capacity rising rapidly, we think there's a compelling case for the RBNZ to err on the side of looser policy. By contrast, we think the RBA will remain in wait-and-watch mode until next year, not least because employment is still running above its maximum sustainable level.
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