VIEW: ASB: Still On A Hard Charge

ASB note that “the details and forecasts in the Monetary Policy Statement were pretty hawkish under the hood, even if the headlines were largely what we expected with a 50bp increase and ‘fighting’ talk. A few details suggest the RBNZ has a greater propensity to keep hiking. The record of the meeting noted there was talk about whether or not to lift by more than 50bp, which flags where the RBNZ sees the risks around the OCR at the moment. However, the Committee agreed that maintaining the recent pace of tightening remained the best means by which to meet their Remit. Furthermore, the RBNZ is going to do more work on estimating the ‘neutral’ OCR, with the view that it is higher – and by implication that the OCR would need to get that much higher to be putting the brake on.”

• “We were looking for signs of added nervousness around the labour market, and those came through clearly. The RBNZ has revised up its wage outlook substantially, and now sees inflation getting below 3% six months later than in its May forecasts. The RBNZ’s new peak OCR forecast is 4.1%, albeit we expected some slight increase.”
• “All up it tips us towards a 4% peak (prev. 3.75%), though we are increasingly getting into the data-dependent part of the tightening cycle. Our view is for a further 50bp increase in October, then two 25bp moves over November and February. Those later two meetings are the fine-tuning part of the tightening cycle, so whether or not a final move to 4% happens will be down to whether there is any tempering in the RBNZ’s inflation outlook over late 2022/early 2023. We still expect OCR cuts from 2024. The path for the OCR will be highly influenced by how quickly labour market pressures tighten in the immediate future, against how quickly demand within the economy buckles and loosens the labour market in the medium term.”