VIEW: Goldman See 3x 25bp Hikes In '21, Note Risk Of 50bp Hike In Aug

Goldman Sachs note that the "Q221 labour market report was very strong. In context, the labour market has now returned to conditions comparable to late 2019 which the RBNZ then characterized as "around maximum sustainable employment". On any measure, this recovery to pre-pandemic conditions has been much faster than we and the RBNZ expected. On the latter, for example, we note that the latest RBNZ forecasts projected only a gradual fall in the unemployment rate to 4.3% by Q224."

• "In light of this and the RBNZ's comment yesterday that it needs to "think about when and how we would return interest rates to more normal levels", we front-load our forecast tightening cycle to include +25bp hikes in August, October and November 2021 - taking the official cash rate to 1.0% by end-2021 (previously 0.5% by end-2021). This will take the OCR back to the pre-pandemic level of late 2019 when the RBNZ described conditions as "employment remains around its maximum sustainable level while inflation remains below the 2 percent target mid-point but within our target range", and see rates returning to our estimated terminal rate of 2.0% by end-2023 (6 months earlier than previous forecast). We note the risk that the RBNZ hikes by 50bp at the August meeting, although we think a series of back-to-back 25bp hikes is more likely."