VIEW: Westpac: Expect More Evidence Higher Rates Are Restraining Demand

Westpac note that “surprisingly, there was almost no change to the projected OCR track compared to the November policy statement. The OCR is still expected to peak at 5.5% in the middle part of this year (albeit slightly later), and to fall only gradually from late next year. We had expected a modest lowering of the OCR track, given that recent inflation outturns hadn’t quite lived up to the very strong assumptions that the RBNZ had made.”

• “The options that the Monetary Policy Committee considered this time were between a 50bp and a 75bp increase. The Committee went for the smaller move, noting that the upside risks to inflation had lessened since the November review.”
• “There was no consideration of delaying interest rate hikes in response to Cyclone Gabrielle’s impact, noting that fiscal policy could address this more effectively.”
• “The RBNZ is clearly grappling with an uncertain environment, even before the impact of Cyclone Gabrielle. It still sees upside risks to inflation in the near term. However, it also sees the risks being towards a shorter and sharper downturn in activity, and a more intense impact on household spending as homeowners roll on to higher mortgage rates.”
• “Our current forecast is for the OCR to peak at 5.25%. In the coming months we expect to see more evidence that higher interest rates are having a restraining effect on demand, which would give the RBNZ some comfort that it has done enough to put inflation on a path back towards the 1-3% target range.”