The Reserve Bank of New Zealand (RBNZ) is expected to announce no changes to its monetary policy settings, although may offer some hawkish hints towards policy normalization as early as this year, given the improvement in the economic outlook.
The rate decision will be announced on Wednesday at 02:00 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming central bank's meeting.
According to FXStreet’s Dhwani Mehta, a hawkish surprise could lift the kiwi but US inflation data holds the key.
Westpac
“The RBNZ will acknowledge that domestic activity is showing some strong momentum. The single biggest surprise for the RBNZ was the 1.6% rise in March quarter GDP, against their forecast of a 0.6% drop. That result will probably also prompt the RBNZ to revise up its assumption about the economy’s potential, but the net effect will still be a significant positive surprise. The RBNZ will also acknowledge the extent of current price pressures, and the increased risk that some of these price rises could become persistent rather than temporary. Unusually, the RBNZ review comes a couple of days before the June quarter CPI release.”
ANZ
“We expect the RBNZ to acknowledge the stronger starting point, the tighter labour market, and rising inflation risks, and thereby set the scene for kicking off the hiking cycle this year. We have been emphasising for some time that the risks were becoming strongly skewed towards lift-off this year. Now that the market is there, it’s more likely. We are now forecasting the RBNZ to start hiking in November, lifting the OCR in steady steps to 1.75% by February 2023. The market is already pricing in almost 90% odds of a hike by November, and “one and a half’ hikes by February. As such, the hurdle for a hawkish surprise is high. We expect the MPR to validate, rather than spur on, expectations for earlier hikes (but post-MPR data could do that).”
Credit Suisse
“We think the data, especially coming from the Q2 survey, should provide the RBNZ with sufficient confidence to sound constructive at next week’s meeting, even amid ongoing uncertainty in the travel sector. The sharp increase in tightening expectations that has taken place over the past week or so (OIS markets are pricing in a 25% probability of a rate hike by August at the time of writing, up from approximately 8% a week ago) however raises the question of whether the RBNZ will be actually able to meet the market’s aggressive outlook. Front-end AUDNZD implied vols are trading close to the bottom of the recent ranges, suggesting that markets are likely positioned for an RBNZ policy outcome that does not challenge market expectations. So while we do not see in the data or in the news flow a strong enough reason to push against the market narrative, we are wary that that bar to meet expectations is increasingly high, and that the FX asymmetry is very clearly in the direction of an outcome that fails to meet market expectations.”
Standard Chartered
“We expect the RBNZ to keep monetary policy settings unchanged. We see a risk of the RBNZ turning more hawkish given the strong results from the Quarterly Survey of Business Opinion (QSBO), which suggest tightness in the labour market and higher inflationary pressure. However, we think it would be slightly premature for the central bank to turn even more hawkish than in May for a few reasons. First, business lending remained in negative territory as of May, despite low-interest rates and higher business confidence. Raising rates too early may jeopardise the nascent recovery. Second, while the QSBO suggests tightness in the labour market, this may be a result of skills mismatch due to supply-side disruptions (i.e. border restrictions), which may ease in the quarters ahead as restrictions are relaxed amid increased vaccinations. That said, we think the risk of the RBNZ turning more hawkish versus tempering down hawkish expectations is balanced. The key to watch, in our view, is how it characterises the tightness in the labour market – as (1) being more persistent and therefore resulting in higher wage pressures, thereby requiring earlier monetary policy tightening, or (2) expected to ease as border restrictions loosen and therefore monetary policy tightening does not have to be brought forward. We lean more towards the latter for now. A premature tightening would run the risk of reversing those hikes as spare capacity returns.”
TDS
"TD brings forward its first RBNZ hike from Aug'22 to Nov'21. We pencil in subsequent 2022 hikes for Feb, May and Nov, taking the OCR to 1.25%. NZ data was strong before the May MPS but Q1 GDP and Q2 QSBO data that followed blitzed expectations. The medium-term outlook has materially changed. Whether the Bank needs 'considerable time and patience' to meet its inflation and employment goals is now questionable. We expect the Bank to acknowledge stronger data outcomes at this meeting. A hawkish tone is unlikely to drive a sharp sell-off. We don't anticipate the Bank to formally announce an end to LSAP in the statement. Should it and Q2 CPI be strong, markets could expect the RBNZ to hike from August.”
BBH
“We see risks of another hawkish hold. At the last meeting May 26, the bank caught markets off guard by projecting the first rate hike in H2 2022. The bank saw the average OCR rising to 0.67% by end-2022, implying 1-2 hikes, and then to 1.78% by mid-2024, the end of the forecast period. That is a very hawkish rate path that quite frankly seems very unlikely. Of note, the RBNZ resumed its practice of publishing its cash rate forecasts after a pause of more than a year but stressed that the projections were ‘conditional on the economic outlook evolving broadly as anticipated.’ This was quite a U-turn from the last meeting April 14, when the RBNZ delivered a dovish hold when it said that gaining enough confidence to remove accommodation ‘is expected to take considerable time and patience’.”
UOB
“The local vaccination programme is still at an early stage and the COVID-19 pandemic is still evolving; new housing tax policy and tighter Loan-to-Value Ratio (LVR) restrictions will dampen investor demand for some time; and the construction sector is expected to remain soft. Further, sectors reliant on international tourism will continue to struggle despite unrestricted domestic activity. Our call remains for the OCR to be unchanged at 0.25% until at least early 2023.”
