VIEW: Kiwibank Now Look For 50bp OCR Hike In May

Kiwibank note that they “had expected the RBNZ to deliver a 25bp hike today. We were wrong. The central bank decided to frontload two hikes into one, and has left the door open to further 50bp moves. In its path of least regrets, ramping up rate hikes was seen as the best way to tackle the rampant rise in inflation and expectations.”

• “The cash rate of 1.5% is still deemed ‘stimulatory’, and more hikes are coming. We now expect the RBNZ to deliver another 50bp move in May to a ‘neutral’ setting of 2%. But the RBNZ won’t stop there. We expect the RBNZ to hike to 3% by November 2022 (pulled forward from 2023).”
• “The RBNZ is clearly focussed on inflation and inflation expectations. We expect inflation to peak at ~7% in the first quarter, and inflation expectations will most likely rise further in the meantime. Rising expectations clearly threatens the RBNZ’s mandate and credibility. Something the RBNZ today was clearly unwilling to accept.”
• “The RBNZ has more work to do to rein in inflation and better balance the economy. The more aggressive approach is likely to accelerate the decline in house prices as interest rates are ratcheted higher, faster.”
• “The RBNZ is tightening policy, by taking interest rates ABOVE normal levels. Wholesale rates markets have factored in the higher rate path. And the wholesale funding costs for banks have risen sharply. Mortgage rates have risen in response, and we expect to see further hikes from here.”