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

**As seen in Risk In The Week report 05/20/24, subscribe at cablefxm.co.uk/reports

The RBNZ left rates unchanged in April at 5.50%, this was in line with market expectations. The central bank said it will need to keep a restrictive policy rate for a sustained period until CPI returns to target in 2024. The committee said it was confident that inflation will come back to mandate as the policy rate is restrictive enough. Following the decision, New Zealand inflation fell to 4.0% Y/y in Q1, this was the softest print since mid-2021. On top of that, the jobless rate rose to 4.3% in Q1, a three-year high and above expectations. More recently, an RBNZ survey of household expectations showed two-year inflation views at 3%, the indicator has led headline prices closely. Heading into the May decision, the RBNZ Shadow Board recommended the OCR to stay at 5.5% while the core view is that the central bank should start cutting rates in 2025.

Analysts at UBS said that of all G10 central banks, the RBNZ faces a greater dilemma when it comes to the inflation-growth policy trade-off, they noted that New Zealand has the softest GDP prints in the group while non-tradable and services inflation remain elevated. UBS expects New Zealand prices to come back to the 1%-3% target by year-end, they see the RBNZ delivering a 25bps rate cut in November before it starts an aggressive easing cycle in 2025.