50bp Hike And 5.5% Terminal OCR Expectation Maintained

The RBNZ unanimously agreed to hike rates 50bp to 4.75% as was widely expected. It looked through the short-term impacts of recent extreme weather to its medium-term expectations. Despite 450bp of tightening this cycle, the central bank is not done yet and still sees the peak in rates at 5.5% (unrevised from November). Given the inflation and labour market data are not until after the April meeting, there are likely to be three 25bp hikes at the April, May and July meetings.

• The Committee discussed whether to raise rates 50bp or 75bp which was a downshift from November’s 50bp, 75bp or 100bp. The smaller 50bp was chosen as inflation risks had “moderated somewhat” but they remained skewed to the upside, thus the RBNZ maintains its tightening bias. Monetary policy is now contractionary and it was noted that there are “long lags”.
• The RBNZ continues to note that core inflation and inflation expectations are too high and the tightness of the labour market is unsustainable. It noted early signs that inflation pressures were easing and that demand was slowing.
• It expects the recent natural disaster to boost inflation and cut activity in the near-term but that rebuilding will support the economy after that. This is reflected in its forecast revisions.
• The Committee said that the economy had developed broadly as expected in November, thus there are only minor revisions to the forecasts, which predominantly reflect the impact of the recent storms. End-2023 inflation is now projected at 5.3% (Nov 5.0%), while the unemployment rate is unchanged at 4.8% and the OCR at 5.5%. There are now 3 quarters of contracting output expected compared with 4 in November as Q1 2024 has been revised up to +0.1% q/q.
• See Monetary Policy Statement here.