This via ASB on the imminent rate hike from the RBNZ this week.
- We expect similar language in this statement as in the last two monetary policy announcements, mainly implying the commitment to hike the Official Cash Rate to bring inflation back to the 1%-3% target band within an acceptable timeframe.
- With inflationary pressures still well embedded in the New Zealand economy, the RBNZ is on track to keep hiking for now to control inflation. Our expectations remain for the OCR to peak at 3.75% after another 50bp hike in October and a wrap-up 25bp hike in November.
- The persistence of the tight labour market as well as the strong wage inflation unfolding point towards some risk of a higher OCR peak. We do not expect inflation to get back into the target range of 1-3% until the first half of 2024.
- Our view is the RBNZ is perhaps too sanguine over how persistent inflation pressures could be: its May forecasts had inflation getting back into the target band with some headroom to spare by late 2023. It is likely to need to slow things by more than it has anticipated. Arguably, though, it has also been too optimistic on how resilient the economy will be in the face of rising interest rates and inflation. Watch on Wednesday for added nervousness over the persistent of wage-driven inflation, though also a potential for a tempered growth outlook.
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On the NZD:
- market reaction will hinge on what the RBNZ says/forecasts about the need for future tightening. The last Statement forecast a circa-4.00% OCR peak, but there’s a risk this may be nudged a little higher. Admittedly, the surprise factor of such has reduced over the past week given the re-strengthening in RBNZ cash rate expectations.
