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MNI RBNZ Review – May 2024: High For Even Longer

The decision to leave rates at 5.5% was unanimous but it was a hawkish hold.

Central Bank ReviewHomepageCentral Bank ReportsMarketsRBNZ - Review

EXECUTIVE SUMMARY:

  • The 0.2pp overshoot of the RBNZ’s Q1 CPI forecast seems to have driven a hawkish shift. Rates may now need to stay restrictive for “longer than anticipated” for the MPC to be confident that inflation will return sustainably to target. The RBNZ’s upward revision to its OCR path and the “real consideration” of another hike reflect this hawkish hold. It also said “rate cuts continue to be delayed”.
  • The decision to leave rates at 5.5% was unanimous as the MPC decided that it could be patient as inflation is expected to return to the band by year end. It is likely to be on hold now for some time as it waits for further quarterly CPI releases.
  • The end-2024 OCR and CPI forecasts were revised higher. Even though growth was revised down, lower assumed potential growth meant that the neutral interest rate and output gap were revised higher.
  • The projected terminal OCR remains around 5.50%, but the cumulative easing expected by year-end has reduced to 23bps from 45bps before yesterday’s RBNZ decision.

Click here for full review:

MNI RBNZ Review - May 2024.pdf

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EXECUTIVE SUMMARY:

  • The 0.2pp overshoot of the RBNZ’s Q1 CPI forecast seems to have driven a hawkish shift. Rates may now need to stay restrictive for “longer than anticipated” for the MPC to be confident that inflation will return sustainably to target. The RBNZ’s upward revision to its OCR path and the “real consideration” of another hike reflect this hawkish hold. It also said “rate cuts continue to be delayed”.
  • The decision to leave rates at 5.5% was unanimous as the MPC decided that it could be patient as inflation is expected to return to the band by year end. It is likely to be on hold now for some time as it waits for further quarterly CPI releases.
  • The end-2024 OCR and CPI forecasts were revised higher. Even though growth was revised down, lower assumed potential growth meant that the neutral interest rate and output gap were revised higher.
  • The projected terminal OCR remains around 5.50%, but the cumulative easing expected by year-end has reduced to 23bps from 45bps before yesterday’s RBNZ decision.

Click here for full review:

MNI RBNZ Review - May 2024.pdf