VIEW: Something For Everyone

ANZ note that "despite some dovish messaging, the omission of forward guidance or an OCR track suggests that the RBNZ hasn't felt the need to send a strong signal to push back against recent market moves, which is now pricing in some change of hikes in 2022. This gives conviction to recent market moves and suggests the RBNZ are happy to stand pat and not make waves for the time being, preserving their optionality. In line with retaining flexibility, there was no discussion of policy normalisation. They simply said, "The Committee agreed that it was important to be confident about the sustainability of an economic recovery before reducing monetary stimulus." Recent market moves have seen wholesale rates rise, but the RBNZ still expects the FLP to exert downwards pressure on bank funding costs and retail borrowing rates. The RBNZ said "borrowing costs would need to remain low to achieve the Committee's objectives." And, "The Committee agreed it expects to see the full pass-through of lower funding costs to borrowing rates, and it will closely monitor progress". This suggests that although the RBNZ is not concerned around the recent lift in rates, they will not want it to undermine low borrowing costs to households and businesses. The market by its nature is always looking for the next thing. "So if you're not cutting, when are you hiking?" Given increasing evidence of cost-push inflation pressures out there and a less negative output gap, this is a very reasonable question. But both we and the RBNZ expect the economy to suffer some decent wobbles this year, and that may see the market's enthusiasm for pricing OCR tightening wane. We're not out of the woods yet."