The reason the RBNZ decided to hike 50bp rather than 25bp can be put down to the following economic factors:
An upward revision to estimates of the inflationary impact of the cyclone rebuild.
A perceived risk that a 25bp hike may not be sufficient to prevent retail lending rates falling.
An upward skew to the risks around fiscal policy.
We have updated our OCR forecast: we still expect a 25bp hike at the May MPS, but this now takes the OCR to a peak of 5.5%. We then expect a long period on hold, and have pencilled in three cuts in late 2024 taking the OCR back down to 4.75%. Obviously that’s a hat-tip rather than a firm expectation.
In the near term, we see the risks as balanced around our expectation that the OCR will be raised another 25bp in May. The economy is clearly slowing, and it may be happening faster than anticipated, particularly residential construction. But on the other hand, the Budget could be significant, and the Auckland housing market is showing signs of life that from the RBNZ’s point of view will be highly unwelcome.
- ANZ
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