OCR Path & CPI Target Return Timing Focus Of RBNZ Announcement

The RBNZ decision is announced today and the MPC is widely expected to leave rates at 5.5% (see MNI RBNZ Preview). Updated forecasts will be released as well and the focus is likely to be on any revisions to the projected OCR path and the timing of the return of inflation to target. With the economy broadly developing as expected, we are not expecting any change to the Q3 2024 timing but there is a chance that the OCR is revised back to 5.5% in 2024 from 5.6%. The first cut is currently not until H1 2025. But in August, Governor Orr reminded analysts that its rate forecasts are model output and not forward guidance, so too much shouldn’t be read into small changes.

• There are likely to be some near-term revisions to reflect new data. Q3 CPI came in 0.4pp below the RBNZ’s August forecast and so Q4 and possibly Q1 2024 may be revised lower. The unemployment rate was only 0.1pp higher than forecast, so these projections may be unchanged.
• The RBNZ has previously reminded us that inflation remains too high and to return it to target policy will need to stay restrictive for a “sustained period of time”, we expect this language to be repeated this month. However, any change to this “high for longer” tone may increase expectations of an earlier rate cut.