VIEW: Kiwibank: The RBNZ Strengthens Their Resolve

Kiwibank note that “the RBNZ maintained a determined and resolute policy stance. Inflation needs to fall, and by quite a bit. The central bank’s hawkish commentary highlighted the upside surprises in domestically generated (non-tradables) inflation and the ensuing spike in wages. Although the RBNZ acknowledged the risks from offshore, and the slashing of global growth forecasts, the focus domestically is purely one of destructing demand to break the back of the inflation beast. More rate rises are required for mandates to be met. We have another 100bps of tightening to come.”

• “The all-important OCR track showed a slight increase in the terminal rate from 3.95% to 4.10%. That simply means the central bank is more determined to get the cash rate to 4.00%, and there’s some risk (10/25) they’ll need to go another step higher. The path of least regrets involves doing more, rather than less, to tame inflation.”
• “We had forecast a peak in this cycle of 3.50%. We believe the RBNZ is getting significant traction from its rate hikes to date. Both business and consumer confidence has been hit, hard, and the housing market is in full retreat. Nevertheless, our job is to forecast what the RBNZ is likely to do. Not want we think they should do. We now expect the RBNZ to hike to 4.00% in this cycle. We have highlighted this risk in our previews. And we’re becoming increasingly wary of the consequences such tightening will bring. The forward-looking indicators are already showing a significant slowdown is in train. And most outstanding mortgages roll onto much higher rates in coming months. There will be a profound impact on discretionary spending - by design.”