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(Z1) Probes Resistance


(Z1) Needle Pointing North


(Z1) Bullish Focus


Dust Settles

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BNZ note that in their opinion, "the data strongly demand a more aggressive approach by the Reserve Bank than that espoused in its August Monetary Policy Statement. The combined state of the labour market and CPI inflation suggests the Reserve Bank should be increasing the cash rate 50 basis points at its November meeting. As we see things, the Bank had already shifted its least regrets strategy to one of being fearful that its withdrawal of the current stimulus might be too late when it raised the cash rate 25 basis points last month. At the time it intimated that, had there not been so much uncertainty, it might well have been more aggressive even then. The question now is: has that uncertainty changed and what uncertainty are we talking about? Uncertainty about the economic outlook is undoubtedly equally as high, if not higher, than it was back in October thanks exclusively to the accelerating spread of COVID in New Zealand and the extended lock down. But, surely, today's data must have provided more certainty that inflation is a big problem. And, it mustn't be forgotten that the current restrictions are again proving to be a major supply shock which is putting even greater upward pressure on prices."

  • "We are not, yet, formally calling for a 50 basis point rate increase at the November MPS but we do think the odds of such have jumped to just a tad under 50:50. We are, however, convinced the RBNZ will need to get the cash rate to neutral more quickly than previously believed so we have thrown in another 25 basis point increase (in April) to our rate track. The overwhelming balance of risk to our forecasts is that we continue to underestimate the speed and extent of the future rate increases required to return the economy to the balance of employment and price outcomes (not to mention the housing market) that the Reserve Bank desires."