RBNZ Outline Case For Tightening But Hold On Amid Covid Outbreak

The Monetary Policy Committee decided to leave the OCR unchanged at 0.25% today, following the government's decision to implement highest-level restrictions on activity across the country. The Committee said that strong domestic data released recently mean that their least regrets stance is to reduce monetary stimulus, but they decided to wait "given the heightened uncertainty with the country in a lockdown".

• The RBNZ took note of consistently upbeat data and agreed that "the economic recovery has broadened in recent months" and "activity in most industries now exceeds pre-COVID levels".
• Policymakers pointed to increasing capacity constraints, particularly in the labour market, as employment is now "at or above its maximum sustainable level".
• The Committee judged that one-off supply-side factors have bolstered headline consumer-price inflation, which may rise above +4% Y/Y in the near-term before abating. They also voiced "uncertainty about whether higher wage growth will be sustained".
• The MPC discussed the impact of monetary policy on house prices, noting that "a number of factors are expected to weigh on house price over the medium term".
• With signs of the economic recovery being in full swing, the RBNZ considered trimming the OCR at this meeting, but deemed an alternative sequencing of OCR cuts more appropriate given the latest developments on the COVID front.
• The Reserve Bank upped their inflation forecasts in the MPS and now expect CPI to register at +4.1% Y/Y in the third and fourth quarters. The main focus, however, fell on the OCR track, which confirmed that the MPC now expect their benchmark policy rate to rise later this year.