MNI RBNZ WATCH: MPC Holds The Line

The Reserve Bank of New Zealand made few changes to its assumptions and outlook following its call to hold the official cash rate at 5.5% today, noting the economy is developing as expected, and refraining from switching to an overt easing stance.

The Monetary Policy Committee has now held the OCR at 5.5% since May 2023. Today’s move was largely anticipated and followed strong signalling from the Reserve and Governor Adrian Orr that inflation expectations must remain anchored as CPI continues to grow well above its 1-3% target range. (See MNI RBNZ WATCH: MPC Set To Hold, Maintain Strong Stance)

New Zealand dollar-dated overnight index swaps pricing was flat to 2 basis points firmer after the decision, with 60bp of cumulative easing priced for year-end, down from the 70bp of cuts expected prior to the decision.

LITTLE CHANGED

RBNZ board members noted risks had changed little since the February meeting and update to its monetary policy statement, and that services inflation and elevated goods prices remained problematic.

“Anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation,” the board noted.

MNI reported last week that a range of baked in price hikes could keep the OCR at 5.5% throughout 2024. (See MNI INTERVIEW: Baked-In Inflation To Quash RBNZ Rate Cut Hopes)

The board also noted the global economy was in a similar condition as in February, and that the labour market remained tight. “The Committee noted that in most major economies the better balance between the demand for, and supply of, labour has been reflected in a decline in job vacancies. However, growth in unit labour costs remains elevated. Inflation will continue to be persistent in regions where higher labour costs have not been accompanied by improved productivity or reduced profit margins."

FURTHER DATA

The MPC had little data to inform its decision in April, however, when it next meets May 22 the Committee will have access to a range of metrics. On April 17, Stats NZ will publish Q1 CPI, which the RBNZ forecasts at 3.8% y/y down from 4.7% in Q4 2023. Updated labour market statistics for Q1 will also be made available on May 1. The RBNZ wants to see unemployment rise 20 basis points to 4.2%.