RBNZ On Hold, Rates May Be Higher Longer Than Thought

The RBNZ left rates at 5.5% at its October meeting which was widely expected and it reiterated its higher for longer stance. The outlook “remained similar” to the last meeting implying that as of this month the RBNZ’s forecasts are unchanged. There was a tweak to the end of the statement saying that policy needs to remain restrictive for “a more sustained period of time” rather than “the foreseeable future”. This may be implying that rather than increase rates further, policy may stay tight longer than is currently expected.

• While the risks to the RBNZ’s outlook are “similar” to August, there was mention of some upside risks to inflation. The stronger Q2 GDP outcome was acknowledged and the upside risk to demand from strong population growth noted. This “could slow the pace of expected disinflation”. Like with the RBA, the RBNZ also commented on higher oil prices and its risk to higher headline inflation. The November 29 meeting will include revised forecasts.
• The statement for August that the MPC is “confident” that current rates will return inflation to target was altered to rates need to “stay at a restrictive level”, thus making the central bank sound a little less sure of its policy stance.
• The few changes to the press release add a sense of less confidence in the on hold stance and add to the higher for longer view. But on the other hand the Committee observed that financial conditions tightened further as average mortgage rates and wholesale rates rose again despite an unchanged OCR. The lags involved in monetary policy were reiterated and “weak demand for credit” observed.
• The global economy, particularly China, remains a source of downside risks to NZ growth.
• See press release here.