MNI RBNZ Review - April 2023: Surprise 50bp, Data Moderation To Determine May Outcome

EXECUTIVE SUMMARY:

• The RBNZ unexpectedly hiked rates 50bp to 5.25%, in contrast to the RBA’s pause at 3.6%. It was widely expected that rates would rise 25bp, following recent overseas banking turmoil and very soft Q4 GDP. 25bp was considered by the Committee but it opted for 50bp because inflation remains “too high and persistent” and the labour market too tight. It agreed that the sooner demand and supply were brought back into balance, the less damage elevated inflation would do.
• The Committee was concerned that recent financial market turmoil had reduced wholesale rates significantly since February and that this could feed through to lower lending rates. Therefore, it was necessary to hike by 50bp to keep these rates at current levels.
• With inflation still too high and the labour market too tight, and Q1 CPI (April 20) and wages/employment (May 3) data due before the May 24 meeting, which will also include updated forecasts, another 25bp is likely then. Q2 inflation expectations on May 12 will also be very important as this is a variable that the Committee continues to highlight still needs to come down. The RBNZ said that the “extent” to which the data moderates “will determine the direction of future monetary policy.”

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MNI RBNZ Review - April 2023.pdf