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TD Securities analysts review the latest Reserve Bank of New Zealand (RBNZ) decision, noting the cash rate was held at 2.25% while inflation forecasts were revised sharply higher for Q1 and Q2. The Bank’s communication reaffirmed a tightening bias, with discussion of a pre-emptive hike and risks that the hiking cycle could start earlier than TD’s current February next-year call.
Higher inflation and pre-emptive hike discussion
“The RBNZ kept the cash rate on hold at 2.25% as expected.”
“Today’s release revealed the Bank now expects headline inflation to print at 3% y/y for Q1 and 4.2% y/y in Q2 (assuming crude <$100), the print for Q2 well off the 2.7% Feb MPS forecast.”
“Our read of today’s release if anything reaffirms the Bank’s bias to tighten.”
“The Board did discuss a pre-emptive hike but held off given “…this could cause unnecessary volatility in output and employment if the conflict was resolved in the near term or if the economic outlook weakens by more than currently expected”.”
“The Bank’s Feb MPS OCR forecast implied a cash rate hike by the end of this year but given the points highlighted above there is a risk the RBNZ acts earlier, and hence to our call for the hike cycle to begin in Feb next year.”
