🏦🇳🇿Cable FX Macro Weekly Note: RBNZ May OCR Decision

**As seen in Risk In The Week report 05/19/23, subscribe at cablefxm.co.uk/reports

Back in early April, the RBNZ lifted rates by 50 bps to 5.25%, this surprised markets, expectations were set for half of that move. The central bank said that the cash rate needs to be at a level to reduce inflation, while it noted that demand still exceeds supply even as the economy slows. The RBNZ now expects the economy to slow through 2023, but it warned that near term inflationary pressures have increased. The statement showed that the committee discussed both 25bps and 50bps options in April. On banking, they mentioned that New Zealand banks are well capitalized and that the system has strong liquidity. Some economists have raised the prices outlook on external factors and reparations from cyclone Gabriel, while the fiscal stimulus will keep the RBNZ on check as spending could add to inflationary pressures. The most recent figures showed N.Z. Q1 consumer prices slowing, the headline fell to 6.7% Y/y, this was lower than the median expectation of 6.9%. Non-tradable prices increased by 1.7% Q/q, this was faster than the prior 1.5%. The desk at NAB said it would be appropriate for the RBNZ to lift the OCR by 25bps in May, they still expect an additional hike to reach their peak rate forecast to 5.75%. NAB said that inflation and leading economic indicators seem to be moving lower, however, the May budget carries expansionary risks. NAB does not expect rate cuts in the OCR until the second half of 2024. Economists at ASB Bank pencilled a 50bps rate hike in May, this was a revision to their previous 25bps call. Analysts at ANZ said the OCR will surpass the central bank’s own peak rate forecast of 5.5%, they expect the RBNZ to deliver two additional 25bps rate hikes in May and July. ANZ warned that the central bank is likely to be nervous on potential further fiscal easing.