VIEW: ASB & BNZ See Rates Staying At 5.5%

Q3 CPI came in below economist and RBNZ expectations which have resulted in some shifting out a rate hike from November to February. Two local banks, ASB and BNZ, don’t expect any further moves from the central bank that rates will stay high as long as it takes to reduce still elevated inflation.

• BNZ wrote “we have long said the cash rate would peak at 5.5% though we acknowledged there was some upside risk. That risk has diminished markedly. Equally, the risk the RBNZ might end up easing earlier than it has projected rises.”
• It observes that the RBNZ “can’t stop local government from hiking rates, it can’t prevent climate change and natural disasters from impacting insurance and rates. And it can do little to improve the supply of rental accommodation. Where we have seen monetary policy at work is through the retail sector where prices are clearly under pressure as demand wilts, inventories build and supply chains ease.”
• ASB believes that “despite 5%+ annual inflation, a confluence of factors should push inflation lower over the medium term. The hurdle to an OCR hike is high and we don’t see the OCR moving above 5.5%. The RBNZ will remain wary and will likely maintain restrictive OCR settings for as long as is necessary to deliver sub-3% inflation.”