VIEW: BNZ Sees Increased Chance Of Rate Hike Following Labour Data

Q4 labour market data including wages came in stronger-than-expectations, including the RBNZ’s. This is likely to make the central bank wary and BNZ says that it increases the chance of a rate hike but it still expects no change at the February 28 meeting. BNZ continues to forecast labour market easing with the unemployment rate likely to rise to around 5.5% and wage growth declining.

• “The RBNZ has been surprised to the downside with the economy’s growth outlook but downplayed this. It was surprised to the downside with the headline inflation outcome and downplayed this. It’s difficult to imagine that these data will be downplayed given they support the RBNZ’s general sense of nervousness about the economy’s inflationary outlook.”
• “Adding to this nervousness will be what the data imply for productivity (really weak) and unit labour cost inflation (really high) both of which suggest upward pressure on prices.
• “With all this in mind, it is highly unlikely the Reserve Bank will adopt a stance at its February 28 Monetary Policy Statement that is any less hawkish than it was when it presented its views in November.”
• “We have been warning that the chance of a February rate hike was non-zero (as opposed to the zero chance of a cut). That non-zero chance has now got a little bigger. While we can’t rule out a hike we will stick, for now at least, with our no-change call.”