VIEW: BNZ: A Dovish Hike

BNZ note that “the world continues to get more bizarre by the day. We had never contemplated using the phrase a “dovish-hike” to describe a 50 basis points rate increase (the largest rate hike in 22 years!). But that is exactly what appears to be the case today."

• “We get the 50. The RBNZ simply decided it couldn’t risk a slower move towards neutral. While we didn’t have 50 pencilled in for this meeting, we did have one for the next. We see no need to change our May view given the clear message the Bank has given about where it wants rates to head near term. Moreover, the Bank, for all intents and purposes, acknowledged it was happy to follow market pricing for this meeting. With 46 basis points priced in for May, why would they do otherwise?”
• “Hence, apart from incorporating the extra 25 bps from today’s move, we have not changed our broader expectations thereafter. Following May’s expected 50, we continue to expect 25 point increases in every meeting until the cash rate peaks at 3.0% in November, one meeting earlier than previously forecast.”
• “While we understand why the RBNZ has done what it has done, we are somewhat confused as to how it can justify its actions on a “least regrets basis” when uncertainty is so high. In its very short statement, the Bank referred to “the highly uncertain global economic environment”, “an elevated level of uncertainty created by the persistent impacts of Covid-19”, and “heightened global economic uncertainty”. As we said in our preview, uncertainty does not seem consistent with aggression in a least regrets framework, as espoused by the Bank in an important policy framing speech last year.”
• “We have long refuted the idea that Governor Orr should be boxed as a dove or a hawk. In our opinion he is an activist. While decisions are made by the Committee, not an individual, there are, nonetheless, signs of this activist intent in what was done today.”