MNI INTERVIEW: Slowing Growth Could Limit RBNZ Rate Hikes

A member of a “shadow board’ of the Reserve Bank of New Zealand believes the outlook for the NZ economy is “darkening” and that the central bank may not raise official interest rates to the forecast high of 3.9% by 2024.

Jarrod Kerr, the chief economist of publicly owned Kiwi Bank and a member of the shadow RBNZ board created by economic think tank the NZ Institute of Economic Research, was speaking after lower than expected GDP data for the first quarter of 2022 showed the NZ economy had contracted by 0.2% after 3.0% growth in the last quarter of 2021.

The RBNZ forecast for the March quarter was 0.7% growth.

“It was much lower than expected, and Covid-19 has had a much bigger impact particularly in the goods producing industries,” Kerr told MNI in an interview.

Kerr said a succession of rate rises since October, which have taken the Official Cash Rate to 2.0%, were cooling the property market and the RBNZ may need to consider the pace and extent of future hikes, (See: MNI STATE OF PLAY: RBNZ Wants 'Least Regrets" On Policy Views).

DOWNSIDE RISKS

In late May, Adam Richardson, the manager of central bank analytics and a new member of the RBNZ’s Monetary Policy Committee, told MNI in an interview that the global economic situation contained a “small chance of some large downside risks” which could have a greater than expected impact on the NZ economy and interest rates.

“We’re already seeing the impact of higher interest rates in housing and consumption, and we are forecasting very soft growth next year,” Kerr said, building on views he made in March. “So I think the RBNZ has had a lot of bang for its buck with the rate rises.”

Kerr forecast another 50 basis point rise when the RBNZ meets in July, which would take the OCR to 2.5% as this was needed to bring inflation – currently at 6.9% - under control.

“I think we’ll see a few more rate rises from them, but I don’t think we’ll see it go to the height of 4% as they’re forecasting,” he said.