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Policy To Stay Restrictive, Outlook Likely To Be Little Changed

RBNZ
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The RBNZ is unanimously expected to leave rates at 5.5% today and little change is expected to its updated outlook or its stance with it retaining its guidance that “a restrictive monetary policy stance remains necessary” (see MNI RBNZ Preview). While there doesn’t seem to be a reason to sound hawkish or dovish, there is always the risk that the RBNZ alters its statement more than expected.

  • There are likely to be some near-term adjustments to staff forecasts to factor in actual data, which were broadly as the RBNZ expected. Q1 CPI was 0.2pp higher than the RBA forecast at 4%. Q1 unemployment rate was 0.1pp higher at 4.3% and Q4 GDP 0.1pp lower -0.1% q/q.
  • Forecasts further out are not expected to be revised significantly with inflation returning to target in Q3 2024 and the mid-point by end-2025 with rates unchanged until H1 2025. A 10bp downgrade to the OCR in 2024 to 5.5% would be slightly dovish but a 10bp upward revision to 5.7% would definitely be interpreted as hawkish.
  • A dovish outcome would likely centre around growth with the RBNZ sounding more concerned about downside risks to growth as survey data have deteriorated over the year and spending is weak.
  • Hawkish risks stem from the inflation outlook and particularly the domestic components. Not only did non-tradeables inflation rise 1.6% q/q and 5.8% y/y in Q1 but the April selected price indices suggested some upside risks to Q2 CPI. In April the MPC discussed both upside and downside risks to inflation and a shift to more concern re the former with upward forecast revisions, especially to 2025, would be hawkish. Material upward revisions to Q3 2024’s CPI forecast of 2.6% y/y are highly unlikely given very favourable base effects.
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The RBNZ is unanimously expected to leave rates at 5.5% today and little change is expected to its updated outlook or its stance with it retaining its guidance that “a restrictive monetary policy stance remains necessary” (see MNI RBNZ Preview). While there doesn’t seem to be a reason to sound hawkish or dovish, there is always the risk that the RBNZ alters its statement more than expected.

  • There are likely to be some near-term adjustments to staff forecasts to factor in actual data, which were broadly as the RBNZ expected. Q1 CPI was 0.2pp higher than the RBA forecast at 4%. Q1 unemployment rate was 0.1pp higher at 4.3% and Q4 GDP 0.1pp lower -0.1% q/q.
  • Forecasts further out are not expected to be revised significantly with inflation returning to target in Q3 2024 and the mid-point by end-2025 with rates unchanged until H1 2025. A 10bp downgrade to the OCR in 2024 to 5.5% would be slightly dovish but a 10bp upward revision to 5.7% would definitely be interpreted as hawkish.
  • A dovish outcome would likely centre around growth with the RBNZ sounding more concerned about downside risks to growth as survey data have deteriorated over the year and spending is weak.
  • Hawkish risks stem from the inflation outlook and particularly the domestic components. Not only did non-tradeables inflation rise 1.6% q/q and 5.8% y/y in Q1 but the April selected price indices suggested some upside risks to Q2 CPI. In April the MPC discussed both upside and downside risks to inflation and a shift to more concern re the former with upward forecast revisions, especially to 2025, would be hawkish. Material upward revisions to Q3 2024’s CPI forecast of 2.6% y/y are highly unlikely given very favourable base effects.