Forecasts Key To RBNZ Outlook

The RBNZ decision is announced today at 1200AEDT including updated staff forecasts and Governor Orr’s press conference at 1300AEDT. We expect rates to be unchanged as policy needs to remain restrictive until inflation will or has returned to the band and the impact of a rate hike would be felt in 1-2 years. There will be particular attention on the OCR path and CPI forecasts (see RBNZ Preview).

• The RBNZ may want to push back against 2024 easing expectations. There are a number of outcomes that could be interpreted as hawkish, including increased concern re upside inflation risks and thus stating that rates may not be restrictive enough.
• This sentiment would be reflected in upward revisions to the OCR path with the first cut pushed out from H1 2025. 2024 was revised up 10bp in November to 5.7% with 50bp of easing removed to Q3 2026. The OCR forecast above the actual signals a tightening bias and a further shift higher would imply the increased probability of a hike. The path is not forward guidance though.
• CPI inflation is currently expected to return to target in H2 2024 and the mid-point in Q3 2025. Upward revisions pushing this timing further out due to wages, inflation expectations and sticky non-tradeables would signal rates “high for longer” and possibly “higher”.
• There are likely to be some near-term downward revisions to headline inflation as Q4 was lower than forecast but it would be interpreted as dovish if those revisions go beyond H1 2024 and thus drive the OCR path lower and are accompanied by a discussion of downside risks.
• A 25bp hike was debated in November, but if that is dropped this month it would signal a more neutral stance. Discussion of a cut is highly unlikely given Orr is in “no mind to cut rates any time soon”.