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MNI RBNZ Preview - November 2022: Fighting For Credibility

RBNZ
  • The October interim monetary policy review surprised to the hawkish side, with the Reserve Bank demonstrating its resolve by language surrounding the expected 50bp rate hike. Domestic data flow since the October meeting underscored the need for continued aggressive tightening. In our view, the odds are high that the RBNZ will raise the OCR by 75bp this week, which would be consistent with its least regrets approach.
  • Although the RBNZ has been at the forefront of the global tightening campaign, price pressure are refusing to show signs of letting up, putting the central bank’s inflation-fighting credibility at a risk. The pass-through from persistently elevated inflation into inflation expectations is evident, making the RBNZ’s task all the more urgent. Acute price pressures are accentuated by ultra-tight labour market conditions.
  • We are cautiously siding with the 75bp camp, albeit there is a risk that the Committee will tip hat to the higher starting point and stick with raising the OCR in 50bp increments. The dovish reception of a half-percentage point increase could be partly offset by ostensibly hawkish revisions to forecasts and the OCR track, but only to an extent. In any case, given the recent surprises on the inflation front, the Reserve Bank will likely chart a new interest-rate forecast with a higher terminal rate.
  • For the full preview click here.
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