Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
The Reserve Bank of New Zealand’s monetary policy committee is likely to hold the official cash rate at 5.5% when it meets on April 10 and will probably keep its messaging largely unchanged to temper rate cut expectations.
Economic activity has slowed and inflation is moderating, driving market expectations of a rate cut sooner rather than later. New Zealand dollar overnight index swaps markets have priced in 25 basis points of easing by August, and a 4.8% OCR by year’s end.
However, RBNZ communications, including recent interviews given by Governor Adrian Orr, have aimed to ice rate cut hopes. Former staffers have also told MNI market pricing seems presumptive. (See MNI INTERVIEW: Baked-In Inflation To Quash RBNZ Rate Cut Hopes)
The MPC has held the OCR steady since May 2023.
MONTHLY PRICES, RECESSION
Stats NZ’s selected price indices – the nascent monthly inflation series that covers 44% of the quarterly CPI’s basket of goods – show prices falling roughly in line with the Reserve’s forecasts. Food-cost increases in particular slowed further in February, despite gains in other areas, such as housing. (See chart)
While a fresh set of quarterly CPI data are not expected until April 17, inflation expectations continue to fall. The ANZ Business Outlook survey's March publication noted price-rise forecasts had fallen to 3.8%, a level not seen since 2021. (See chart)
The RBNZ expects Q1 2024 y/y CPI growth to slow to 3.8% from the previous quarter’s 4.7% and to fall within its 1-3% target band sometime between Q2 and Q3.
The New Zealand economy also slipped into recession since the MPC’s last meeting, with Q4 2023 GDP shrinking 0.1%, versus the flat growth expected in the RBNZ’s last set of forecasts. (See chart)
The recessionary news likely hit consumer confidence over the month, with the ANZ-Roy Morgan consumer confidence index falling 9 points in March to 86.4, snapping a trend of steady improvement.
CUTS UNLIKELY
Despite the sour economic news, former staffers have noted near-term cuts remain unlikely. Inflationary pressure, particularly for services, is high, while non-tradable price increases are continuing while fixed mortgages are still rolling over onto higher rates, which will continue into 2025.
Higher immigration will also add further demand pressure and keep inflation elevated over 2024, a former Treasury official told MNI. (See MNI INTERVIEW: High NZ Immigration To Pressure Rates)
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.