VIEW: BNZ: RBNZ Committed To Inflation’s Death

BNZ note that “the RBNZ has decided it wants to put the nail in the coffin of inflation. It senses that the battle has nearly been won but is terrified that inflation might sneak away if given the slightest chance. Consequently, not only did it raise its cash rate by 50 basis points to 3.0% today but it also appeared to cement in a further 50 point rise in October and a very strong likelihood of yet another 50 points in November. Thereafter, it becomes a line ball call whether rates need to move any further, though the Bank sees the balance of risk being one last hike to cap things off.”

• “We, along with everyone else, had expected the Reserve Bank to announce today’s hike. We had also expected the peak in the RBNZ’s cash rate track to be around 4.0% (it is, albeit 4.1% now compared to 3.9% in May). We were also looking for guidance to push our expected cash rate increase in October to 50 (from 25), which we have now done. But what we weren’t expecting was a green light for the extra 50 in November, which we now concede to.”
• “In hindsight, perhaps we should have worked this out. It’s a long wait between November and the February 2023 meeting so what the Bank will have done, if it follows through with its published rate track, is grant itself time to see the impact of its actions on the economy before having to make any further decision. In our view 4.0% will be the peak in rates, as we believe the Reserve Bank’s actions are almost guaranteeing a recession, its requisite pick up in the unemployment rate and the required drop in inflation.”
• “Despite believing the Bank does not need to go as hard as it says it will, we have no beef with the idea that its actions will achieve its objectives and, after all, that is, ultimately, what the Bank should be judged on.”