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Westpac On NZ Budget - Reinforces Higher OCR View

NEW ZEALAND
Westpac states the NZ budget is more expansionary than they anticipated, reinforcing their revised higher OCR peak of 6.00% (5.50% prior).

"All up, the fiscal forecasts are more expansionary than we had anticipated. As a result, the Budget will add to inflation pressures in the short term. For example, Treasury estimates that the fiscal impulse is expansionary to the equivalent of 1.7% of GDP over 2023/24, compared to 0.7% contractionary as forecast in the Half-Year Update. We do note that the fiscal impulse then flips to contractionary from 2024/25 onwards."

"While the Reserve Bank typically takes the Treasury’s fiscal projections as given, they have long been highlighting the risk of a larger boost to spending. That risk has now materialised, supporting our view that the RBNZ will now likely be looking at a higher OCR peak than the 5.5% it had previously projected. That said, quantifying the impact for monetary policy is no simple task; we’ll consider this in more detail in our upcoming Monetary Policy Statement preview."

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