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MNI RBNZ WATCH: MPC To Consider Pause As Inflation Falls

(MNI) Melbourne

The Reserve Bank of New Zealand will consider holding its Official Cash Rate at 5.5% at its Nov 29 meeting, its last for 2023, and could pull forward its peak-rate forecasts within November's Monetary Policy Statement as inflation falls faster than expected.

The Monetary Policy Committee's previous statement, in August, predicted the cash rate would peak at 5.6% by the March 2024 quarter with first rate cuts not expected until Q4, however, Q3 inflation has printed more softly than expected, while the labour market has weakened.

The overnight index swaps markets has also shifted peak rate expectations lower. The market expects the Reserve to hold next Wednesday and does not expect cuts until May 1 , a firm shift from before the October meeting when the market had priced in a 5.75% OCR peak by February.


New Zealand’s Consumer Price Index rose 5.6% y/y in the September quarter, down from Q2’s 6% and below both the market’s 5.9% expectation and the RBNZ’s 6.0% forecast, Stats NZ data showed in October. (See chart) CPI rose 1.5% q/q, while annual non-tradable inflation grew 6.3%. Annual tradable inflation rose 4.7%.

The slower print shows inflation is falling much faster than the RBNZ’s most recent forecasts. The central bank had expected annual CPI to sit at 5.2% by Q4, but this will likely change when it updates its predictions.


The unemployment rate in Q3 also crept higher at 3.9%, 10bp higher than the RBNZ’s forecast, while the employment rate fell 0.7 percentage points to 69.1% and the underutilisation rate gained 0.4 pp to 10.4%, illustrating spare capacity building in the labour market. (See chart)

In its August forecasts, the RBNZ had expected a peak unemployment rate of 5.3% by December 2024. The Reserve will also likely shift this peak forward.


A new coalition has formed government following New Zealand’s general election in October held shortly after the MPC’s last decision.

While all three coalition partners campaigned on tighter fiscal management, or fully-funded polices, they have only this week formed government after six weeks of negotiation and released details of their agreement, which calls for tax cuts and the simplification of the RBNZ’s mandate so that it concentrates on inflation. (See MNI: RBNZ To Lose Dual Mandate Within 100 Days- Ex Staff)

While specific fiscal numbers were omitted, the agreement notably dropped a plan to tax foreign property buyers that had aimed to raise NZD750 million. New Zealand’s deficit is about 2.7% of GDP, one of the highest in the developed world.

The MPC will meet next on Feb 28.

Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.
Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.

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