RBNZ - Reserve Bank of New Zealand

RBNZ - Reserve Bank of New Zealand

5-APR-2024

RBNZ Announcement (Wed):

RBNZ is expected to keep the OCR unchanged at 5.50% with money market rates pricing around a 95% probability for the OCR to be maintained at the current level and less than a 5% chance of a 25bps cut, while a recent Reuters poll showed economists were unanimous in their forecasts for no change in rates. As a reminder, the central bank kept its rates unchanged at the last meeting in February and stated the OCR needs to remain at a restrictive level for a sustained period and that the committee remains confident that the current level of the OCR is restricting demand. RBNZ noted core inflation and other measures of inflation expectations have declined and that risks to the inflation outlook have become more balanced but added that headline inflation remains above the 1%-3% target band, limiting the committee's ability to tolerate upside inflation surprises. However, the key takeaway from that meeting proved to be the projections for the OCR which were dovish as the central bank reduced its OCR forecast with the June 2024 view lowered to 5.59% from 5.67% and the March 2025 view lowered to 5.47% from 5.56% suggesting the unlikelihood of a hike. Furthermore, the minutes from the meeting noted that ongoing restrictive monetary policy settings are necessary to guard against the risk of a rise in inflation expectations and the committee agreed interest rates need to remain at a restrictive level for a sustained period of time. The rhetoric from the central bank since then continues to suggest a lack of urgency for the central bank to tweak policy in the near-term as RBNZ Governor Orr stated the economy is evolving as anticipated and inflation is still too high but is declining, while he added policy needs to stay restrictive for some time and expects to begin normalising policy next year. Data also supports the case for no adjustments as above-target inflation narrows the scope for near-term loosening, while further tightening is also seen as unlikely especially as recent GDP data showed a surprise contraction in New Zealand's economy which entered into a technical recession during Q4 with GDP Q/Q at -0.1% vs. Exp. 0.1% (Prev. -0.3%) and Y/Y at -0.3% vs. Exp. 0.1% (Prev. -0.6%).