VIEW: ANZ: Prudent Move

ANZ note that “as we expected, the RBNZ raised the OCR 50bp to 1.50% today, saying “it is appropriate to continue to tighten monetary conditions at pace”. We continue to expect a follow-up 50bp hike at the May Monetary Policy Statement, with more cautious 25bp moves from there. The comment that this move was a “stitch in time” approach suggests a trade-off with the endpoint for the OCR, which we’d agree with.”

• “There were no easy policy choices for the RBNZ today. Even though the OCR is still very low, the pace of change in mortgage rates has been rapid, and with the housing market cooling more quickly than the RBNZ anticipated, oversteering the slowdown is a genuine risk. On the other hand, not authoritatively moving against broad-based inflation pressures that are miles out of line with the target - and yet to show any signs of turning - would risk giving a further leg up to inflation expectations, making the job of reining in inflation that much harder. That would exacerbate risks to the medium-term economic outlook.”
• “There’s no free lunch. It was a brave decision by the RBNZ Monetary Policy Committee today, but the right one in our view. The decision will no doubt come under scrutiny as evidence of a retreating housing market and a more cautious consumer continues to accumulate.”
• “Because of the lags inherent in how monetary policy works, and the uncertainty inevitable in economic forecasting (let alone pandemic forecasting), getting the amount of tightening exactly right is likely to require a hefty dose of good luck as well as good management. The uncertainty around where the OCR will (or should) peak could hardly be greater. But promptly getting the OCR closer to neutral - lifting the foot pretty quickly off the accelerator - is a prudent step at this stage.”