ANZ shifts its previous prediction of cuts
ANZ Research has revised its forecast for New Zealand’s OCR, predicting an increase to 6% with two additional rate hikes expected by April 2024.
This adjustment marks a significant pivot from ANZ’s January prediction, which suggested a series of OCR cuts beginning in August.
According to Sharon Zollner (pictured above), ANZ NZ chief economist, the change is based on “a lot of small pieces of data,” rather than a single, transformative insight.
Speaking on the 5 in 5 with ANZ podcast, Zollner noted the global financial community’s focus on RBNZ, viewing it as an early indicator of broader economic trends.
“NZ and US inflation is pretty highly correlated,” she said. “In fact, New Zealand pricing intentions explained US inflation better than it does our own! If the Reserve Bank does follow through and hike in February, despite the fact that the economy is obviously weak… I think that would certainly get some international attention.”
The potential for a February rate hike by RBNZ, despite New Zealand’s economic fragility, could attract significant international attention. Zollner pointed out that the RBNZ was among the first to initiate post-COVID rate hikes and to accelerate them, actions that were closely watched and later mirrored by other central banks, including the Federal Reserve.
“People thought well if they’re going to do it, then maybe the Fed will as well and that turned out to be precisely the case,” she said.
At its November meeting, RBNZ hinted at the possibility of further rate increases if inflation did not align with its target band sustainably. Zollner interpreted this stance as a firm commitment by the central bank to its inflation control strategy, drawing parallels to similar statements made in the early 2000s before the bank executed rate hikes.
Given the RBNZ’s historical precedent and the nuanced economic indicators currently at play, Zollner believes that the central bank is poised on the edge of tightening monetary policy further.
“We don’t think the Reserve Bank was bluffing, we think they were calling it like they see it,” she said. “And if that’s the case and they’re actually that close to the line, it’s not going to take much to push them over.”
Click here for the original ANZ report.
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