Goldman Sachs: Growth v. Inflation, The Defense Argues its Case

Goldman Sachs note that “the RBNZ delivered a hawkish hike this week; the 75bps increase in the OCR was in line with expectations, but the Bank’s revisions to its projections leaned hawkish, showing an outright recession in 2023, an increase in the unemployment rate, and higher inflation.”

• “Overall, the revisions suggest that the RBNZ remains focused on inflation, and is willing to drive the economy towards recession to cool prices increases, while other G10 central banks, like the RBA and BoC, have begun to express greater concern about the effects of tight policy on growth.”
• “A relatively more hawkish reaction function from the RBNZ should continue to benefit NZD, provided that the bank remains comfortable with higher real rates weakening growth. NZD has outperformed AUD partly as a function of the relative policy view, though we continue to see upside risks to terminal rate pricing in Australia.”
• “However, we continue to think risk is likely to remain under pressure over the near term, which may put a ceiling on the amount of strength NZD could see on other crosses over the near term.”