Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
The Reserve Bank of New Zealand is likely to hold its Official Cash Rate steady again at 5.5% at its Aug. 16 meeting and will likely not move to indicate more hikes in its updated Monetary Policy Statement as inflation continues to fall back to its 1-3% target, though ex-staffers see further tightening as possible.
The New Zealand economy has continued to slow since the monetary policy committee last met on July 13 (See MNI RBNZ WATCH: Rates Rest At Restrictive Level), when it left the OCR unchanged and indicated that the rate was already at a restrictive level, with unemployment rising above expectations and inflation easing. Market pricing implies the Reserve will pause at 5.5%, with only an 8% chance of an increase at the next meeting. However, the overnight index swap market sees the peak at 5.6% by the Nov. 29 meeting.
MIXED LABOUR
The unemployment rate rose 20bp to 3.6% q/q in Q2 – 0.1pp above the RBNZ's forecast, while salary and wage rates climbed 4.3% y/y, according to data released by Stats NZ (see chart). In its May Monetary Policy Statement, the RBNZ forecasted unemployment to rise to 4.6% by the end of the year.
Employment, however, gained 1.25% y/y to 69.8% and 0.3% over the quarter, while the labour force participation rate grew 1.5% y/y, or 0.4 q/q, to 72.4%. The strong employment result has lead some ex-RBNZ personnel to tip further rate hikes (See MNI INTERVIEW: More OCR Hikes Possible - Ex-RBNZ Governor).
Market officials and ex-staffers agree employment remains too resilient and the RBNZ will want to see further weakness over the mid-term.
CPI MODERATION
Headline CPI slowed again in the June quarter, printing at 6.0% y/y, down from the March quarter’s 6.7%, but higher than the market’s 5.9% expectation. Trimmed mean measures of inflation remained high between 5.7-6% y/y compared to 5.9-6.1% recorded in Q1 (See chart).
While the RBNZ will look favourably on the headline result, sticky services inflation could also add to the case for future rate hikes, according to ex staffers. Recent inflation data, however, paints a mixed picture. While food prices fell 0.5% m/m in July (see chart), rent has continued to climb, gaining 0.4%, according to Stats NZ.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.