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MNI RBNZ Preview - April 2022: 25bp vs. 50bp Coin Toss

EXECUTIVE SUMMARY

  • Another OCR hike is a done deal. The argument is whether the RBNZ will raise it by 25bp or 50bp and this week's MPC meeting is definitely a "live" one. Most sell-side economists call for a measured move, but market pricing points to a considerable (~76%) chance of a double-barrel rate rise.
  • We somewhat reluctatly join the 25bp camp owing to several factors. Sentiment among consumers and businesses is soft. The housing market is in retreat. Monetary conditions have already tightened through higher mortgage rates and exchange rate.
  • Furthermore, the May policy review will be accompanied by a fresh Monetary Policy Statement, while the weeks ahead will bring some key data releases and the 2022 Budget. This makes the May meeting a better occasion for accelerating stimulus withdrawal.
  • Having said that, we will not be particularly surprised if policymakers decide on a half-point hike as soon as this week. It is clear that inflation has gone ballistic and nobody is questioning the RBNZ's need to prove its determination in fighting mounting, broad-based price pressures.
  • In any case, the aftermath of Wednesday's monetary policy review should see some volatility in New Zealand assets, given that it is such a close call.

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