VIEW: Westpac Revise OCR Call, Only Look For One 25bp Hike

In lieu of the Q4 GDP print Westpac note that “today’s GDP figures were a major downside surprise to our understanding of the state of the economy. The 0.6% drop in activity was weaker than both we and the market expected, and even more so once we take into account the downward revisions to growth in the previous quarters.”

• “Crucially, these add up to a huge miss for the Reserve Bank – GDP is running almost two percent below what the RBNZ was expecting in its February Monetary Policy Statement. It’s still true that the economy is coming from an overheated starting point, but not nearly to the degree that the RBNZ thought. And that matters for how much of a slowdown will be needed from here to bring inflation back under control.”
• “We’ve revised our OCR forecast down to a peak of 5.00%, from 5.50% previously. That implies only one more 25 basis point increase left in this cycle, which we still think will be delivered at the April OCR review. The RBNZ won’t necessarily call time on the tightening cycle at that point – and since it won’t be publishing new forecasts at the April review, it doesn’t have to be explicit about the path forward. Rather, it could shift its language towards noting that a substantial amount of tightening has been put in place over the last 18 months, and that any further moves will be data-dependent.”