But 0.25% jump could happen in November, says economist
The Reserve Bank of New Zealand’s announcement that it would keep the official cash rate unchanged at 5.50%, aligned with market expectations and was ‘an easy decision’, says ANZ New Zealand chief economist Sharon Zollner.
Zollner (pictured above) said the RBNZ decision mirrored its July Monetary Policy Statement, with a few additions.
The Reserve Bank had acknowledged that its previous house price forecasts were overly pessimistic and suggested that house prices may have reached sustainable levels.
However, ANZ is forecasting a 25-basis point hike in November.
“Today’s decision to leave the OCR unchanged at 5.5% was an easy one, as rate decisions go,” said Zollner on Wednesday.
“As we noted in our preview, the data since the May MPS has had its unders and overs but overall clearly supports the RBNZ’s on-hold stance –and in any case, it would take a lot to move the dial when the pause is only six weeks old!”
ANZ maintained its unchanged OCR forecast, as it anticipated that both the RBNZ and the market would not align with its perspective until later in the year.
“Indeed, we are likely to see a lower CPI print next week than the RBNZ forecast in its May MPS,” Zollner said.
“We are forecasting a mild recession, but don’t think the economy (and the labour market in particular) is rolling over quite as rapidly as the RBNZ expects; hence our placeholder 25bp hike in November. We’d characterise 5.5% as the RBNZ’s first pass at what’s needed, not necessarily the final word. This forecasting business is too uncertain for anyone to be sure of that.”
According to ANZ, there are several variables that will impact the economic landscape before the end of the year.
“While on balance we see the risks as tilted to the OCR still needing to go a little higher, there are risks that could see the RBNZ cutting rates by year end, absolutely,” Zollner said.
“After all, New Zealand’s economic cycles tend in practice to be brought to an abrupt end by global developments, not gently brought into land by domestic monetary policy. Will China manage to stabilise the consumption outlook? Will US inflation allow the Fed to stop hiking before something breaks? Fingers crossed.”
Zollner said domestically, fiscal stimulus and migration could well prove either more or less inflationary than anticipated. “COVID or energy prices could upset the apple cart. The housing market and/or labour market could throw curveballs.”
ANZ affirmed the RBNZ's decision to maintain the OCR reflected the current inflation indicators and enhances the credibility of their stance. “Moving forward, we will closely monitor the data to gain further insights,” said Zollner.
