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MNI BRIEF: RBNZ Inflation Fears Fall Short, 50bp On Radar

(MNI) Perth

Evidence that inflation isn't accelerating as the Reserve Bank of New Zealand had forecast has dented the odds of a 75bp hike at its February 22 meeting, with a 50bp increase seen as a certainty given inflation remains well above target.

The Consumers Price Index rose at a 1.4% q/q and 7.2% y/y pace in Q4, StatsNZ said, falling shy of the 7.5% forecast in the central bank's November Monetary Policy Statement. While well above the RBNZ's 1-3% inflation target, there was some relief as the trimmed mean fell to 6.1% y/y from 6.4% y/y previously, while non-tradables inflation steadied at 6.6% y/y.

The nascent signs of an easing in inflation, coupled with the RBNZ's forecast for a four quarter recession starting in Q2, provides the central bank leeway to ease back from another 75bp point hike that had been expected by markets. The RBNZ hiked by 75bp to 4.25% in December bringing its cumulative tightening to 400bp since October 2021.

The CPI data prompted markets to slightly lower the odds of a 75bp hike in February. Overnight indexed swaps eased slightly on Wednesday, pricing in around 60bp of tightening. (See BONDS : NZGBS: Firmer Post-CPI, Although Curve Steepens As Day Wears On) RBNZ Governor Adrian Orr has stated the RBNZ is "deliberately" trying to slow aggregate spending in the economy (see MNI BRIEF: RBNZ "Deliberately" Slowing Economy - Orr).

Robert covers RBA and RBNZ policy and the economy for MNI in Australia.
Robert covers RBA and RBNZ policy and the economy for MNI in Australia.

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