VIEW: Westpac: Bank Firmly Focused On Inflation Developments

Westpac note that “the short media release accompanying the statement focused largely on the extent of inflationary forces in the economy. The RBNZ does not seem to buy into any signs of softening in the local economy, instead highlighting capacity constraints as the biggest restraint on growth. The RBNZ repeated its comments that “it remains appropriate to continue to tighten monetary conditions at pace”. This leaves the door open for further 50 basis point hikes at the October and November reviews, in line with our forecast. We recently upgraded our OCR forecast to a peak of 4% by the end of this year. Today’s statement is consistent with our forecast. However, we remain of the view that tightening is unlikely to continue into next year. We differ from the RBNZ in that we see early signs that higher interest rates hare having the desired impact in terms of cooling domestic demand. We expect that that will become more evident to the RBNZ by the November review.”