After identifying it as an upside risk to medium-term activity and inflation in April, the RBNZ sounded far more unsure this month. The RBNZ has tripled its assumption for annual net migration (working age) for 2023 to 75,200. While that’s likely to ease constraints in the labour market and put downward pressure on wages, we are wary of the impacts on general demand and house prices and rents in particular, just as the housing market is showing signs of life.
Given these upside risks, we still think further hikes are on the table, but it’s a high hurdle for the RBNZ to recommence tightening having called a pause now. Looking at the key incoming data before the next few meetings, we don’t see it as being enough to sway the RBNZ from holding rates at 5.50%. But we expect these demand effects will continue to build, and by November the case for further hikes will be clear.
We consider the RBNZ to have made best-case scenario
assumptions about recent migration and fiscal surprises, and we
see the balance of risks as tilted toward the RBNZ having to do
more to finish the job of bringing inflation down sustainably
- ANZ
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