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MNI RBNZ Preview – February 2024: Watching, Waiting & Worrying

EXECUTIVE SUMMARY:

  • The RBNZ is probably still “watching, worrying and waiting” thus there is no incentive to change rates in either direction and while we don’t expect a rate hike, we believe it will want to keep policy and thus financial conditions restrictive until it is confident that inflation will or has returned sustainably to the 1-3% target band.
  • There's a 27% probability priced in for a 25bp hike during this week's meeting, with an anticipated terminal OCR of 5.65% (reflecting a 60% probability of a 25bp hike) by the May meeting. By year-end, a cumulative 41bps of easing is factored into the pricing.
  • Given we expect the tightening bias to be retained, we also expect that the MPC will discuss a rate hike but then opt for no change. Guidance from the MPC is likely to emphasise the high degree of uncertainty and focus on risks to the inflation outlook. Updated staff forecasts will be presented and will be monitored for changes to the OCR path and CPI forecasts, especially upward revisions.
  • The RBNZ is likely to sound cautious and push back against rate cut expectations by saying it is too soon to talk about easing, discussing a rate hike or possibly pushing out the first cut in its OCR path. Given the high degree of uncertainty, the hold could be prolonged for most of this year.

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