VIEW: ASB: Cranking It Up

ASB note that “the RBNZ was more hawkish than generally expected. The Monetary Policy Statement showed a need to lean much harder against inflation than was the case for the November Statement, and expressed some added concern about the risk of high inflation becoming embedded. Comments also indicated it was a ‘finely-balanced’ decision between a 25bp and 50bp lift. The Monetary Policy Committee also noted a preparedness to move in bigger steps than 25bp “if required”. The RBNZ forecast endpoint for the OCR has been increased to 3.35%, from 2.6% in the November MPS forecasts. The RBNZ will also in July start reducing the bond holdings it built up from its Large Scale Asset Purchase programme, at a pace of $5bn/year.”

• “All of these point to the RBNZ realising there is growing risk of inflation becoming more persistent, with more monetary restraint required. We retain our view that the RBNZ will steadily lift the OCR in consecutive 25bp moves to a peak of 2.75% (175bp higher than the current level). However, based off today’s Statement, we acknowledge the skew of risks is on the high side of that. Market pricing is starting to back away from the ‘considered steps’ mantra and is factoring in the possibility that the RBNZ delivers more than ‘just’ 25bp moves at the next six meetings of 2022.”