The RBNZ will likely hold the OCR at 5.5% ahead of a CPI update and a general election when it meets Oct 4.
The RBNZ will maintain a hawkish tone noting more restrictive rates may be needed to pull inflation back to its 1-3% target band, but the Monetary Policy Committee will be wary of hiking the cash rate before the general election scheduled for Oct 14.
AS EXPECTED
Despite strong June quarter GDP, showing growth of 0.9% q/q (see chart), 40bp higher than expected, the economy has performed largely in line with RBNZ forecasts.
According to one ex-staffer, the higher GDP result was likely driven by a rundown in inventories and one-off factors such as construction delays and seasonal consumer spending. (See MNI: Wildcard Data Raises Chances Of RBNZ Nov Hike - Ex Staff) The result is not likely to be repeated and a stronger slowdown into H2 will manifest as higher mortgage rates and increased funding costs bite.
Paul Conway, chief economist at the RBNZ, told MNI shortly after the August decision that rates would likely hold at 5.5% until well into 2024, despite resilient export volumes, a stabilising real-estate market and strong services sector price rises. (See MNI INTERVIEW: Rates To Hold, But Upside Risks - RBNZ's Conway)
STRONGER OCTOBER DATA
However, data expected between Oct 4 and the Nov 29 meeting could force the MPC to raise the OCR by 25bp again if it prints stronger than the central bank has forecasted.
Conway noted in August that persistently strong price rises feeding expectations presented an upside OCR risk, while strong wage growth outstripping productivity could add pressure to inflation over the short term.
Ex-staffers have also pointed to increased government spending and stronger-than-average immigration – the population is growing just over 2% a year (see chart) – as well as the potential for a fresh inflation wave driven by non-tradable price rises as further risks that could force the MPC to act. An October CPI print 6% or above will increase the chance of a November move. Stats NZ will update quarterly CPI Oct 17.
