Monetary policy in holding pattern
The Reserve Bank (RBNZ) is expected to leave the OCR at 5.5% in its upcoming review, maintaining a cautious stance amid evolving economic data, according to ANZ economists.
“We expect the RBNZ to leave the OCR at 5.5% next week, reiterating that they remain in watch-worry-wait mode,” ANZ chief economist Sharon Zollner (pictured above) said.
Soft data and policy rhetoric
Recent data has shown a dovish tilt, primarily from surveys and anecdotes.
“The ‘soft’ (survey) data since the May Monetary Policy Statement clearly tilts dovish,” Zollner said. “That is likely to be acknowledged in the review, but we doubt it’s sufficient to bring about a meaningful change in policy rhetoric from the RBNZ.
“We continue to forecast the first OCR cut to come in February, with risks tilting towards earlier.”
Economic developments since May
The period since the May Monetary Policy Statement has seen mixed economic signals.
The budget presented a combination of tax and spending cuts, with limited impact on inflation pressures.
First-quarter GDP growth met RBNZ expectations, though details suggested softer conditions.
Notably, ANZBO inflation indicators and the NZIER QSBO survey showed significant declines in inflation expectations.
Inflation and market reaction
RBNZ’s trade-weighted index (TWI) has been slightly higher than expected, while oil prices and shipping costs have fluctuated.
“There’s no need for the RBNZ to take a strong stand at this review,” Zollner said. “The market has slightly amped up its easing expectations in response to the above dataflow, but not inappropriately, in our view.”
Upcoming data and potential OCR cuts
The next major data point, the CPI release on July 17, is seen as more crucial than the upcoming OCR Review.
“The CPI release on July 17 is a bigger day in the financial market calendar than next Wednesday’s OCR Review,” Zollner said.
“In the big picture, it’s going to take domestic disinflation runs on the board to see the RBNZ acknowledge that cuts are likely to come far earlier than their May MPS estimate of August next year.”
Read the ANZ publication here.
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