VIEW: Goldman Stick With RBNZ Call, Bar Is High For Accelerated Tightening

Goldman Sachs note that today's upside CPI surprise “relative to the RBNZ's already-elevated forecasts clearly raises the risk that the RBNZ steps up the pace of tightening at its August meeting (we see a 35% chance of a 75bp hike). However, we note that in its meeting last week the RBNZ had already flagged the 'near-term upside risk' to inflation, but this was balanced against the 'emerging medium-term downside risks to economic activity' in driving its decision for a 50bp hike. With the OCR already at a modestly restrictive level of 2.50%, we think the bar for the RBNZ to accelerate the pace of tightening at this point in the cycle is relatively high - and will likely require clearer signs of a breakout in long-term inflation expectations rather than high spot inflation. We maintain our call for a 50bp hike in August and 3.50% OCR by year-end, and will be watching closely at the upcoming data on Q2 labour force and inflation expectations ahead of the August RBNZ meeting.”