VIEW: BNZ: CPI Turns Hawks Into Doves

BNZ note that “Today’s CPI outturn left us more convinced that the Reserve Bank does not need to raise its cash rate by 75 basis points when it delivers its rate-set verdict on February 22. Unfortunately, it leaves us equally convinced that, in the eyes of the central bank, it will be a line ball call. Interest rate markets seem to have reached the same conclusion.”

• “We are definitely tempted to lower our February call to 50 from 75 but there’s not enough in this CPI to do so, especially given that our starting point rate track was at the low end of the suite of forecasts in the first place.”
• “Ironically, market pricing could yet determine the February OCR outcome, especially if the Reserve Bank is walking the tightrope that we think it is.”
• “We’ll stick with our 75 call for February, with downside risk. But we stand ready to formally shift to a softer stance if the upcoming labour market data significantly surprise on the weaker side.”
• “Furthermore, we acknowledge that if financial markets push strongly for a 50 point move it will be hard for the RBNZ to stand in its way. Irrespective of our final call on the Reserve Bank’s likely actions, we maintain our long-held view that a peak in the cash rate of 5.50%, as touted by the Bank in November, is probably unnecessary.”