VIEW: Holding Back The Incoming Interest Rate Tide

ASB note that "The RBNZ had a tough job to do today: update its outlook to reflect a much better starting position for the NZ economy while still trying to hose down the wave of optimism that has crept into global financial markets and propelled wholesale interest rates higher. The message in the statement did a fairly good job of balancing those competing messages, clearly pointing to all the potential banana skins littering the outlook. The market was not totally convinced, with the NZD and NZ interest rates having firmed in the aftermath of the RBNZ announcement. The RBNZ left the settings/conditions for all its monetary tools unchanged at this point, including no changes to its Large-Scale Asset Purchase (LSAP) programme, retaining the flexibility to adjust purchases in light of changes to 'market functioning'. Our view is that the RBNZ will gingerly start lifting the OCR from August 2022. That is 18 months away, which is an eternity in a time of heightened uncertainty. It will depend on key factors such as the border opening up and confirmation that the RBNZ's inflation and employment objectives are clearly on track to being met. And the eventual endpoint we envisage is a low 1.25% - closing in on our estimate of the 'neutral' OCR and still implying interest rates will be giving the economy a degree of support for some years yet."