We expect the RBNZ will raise the Official Cash Rate (OCR) 25bp to 5.50% at its Monetary Policy Statement (MPS) next Wednesday. We see a 20% chance of a 50bp hike and a 5% chance of a pause. Either could backfire by driving down future OCR expectations.
We are building one more 25bp hike in July into our own OCR forecast, which would take the OCR to 5.75%. The (relatively) happy place to sit and “watch, worry and wait” keeps inching just out of reach.
CPI inflation starting point, inflation expectations, LCI wages, and global growth. Upside: soaring migration (the biggie), an earlier floor in house prices, a tighter labour market starting point, slipping fixed mortgage rates, and fiscal policy (probably also a biggie – we’ll know more on Thursday – but that’s less ‘new news’ versus the April Review than the migration data is).
There will be as much art and strategy for the RBNZ in determining the OCR track as science, given the current degree of uncertainty and the number of moving parts. Our best guess is a peak of 5.7% (previously 5.5%), indicating a probable further hike. But if the RBNZ are more worried about housing green shoots and migration than we expect, they could signal a peak closer to 6%. Whatever the suggested peak for the OCR, the RBNZ is very unlikely to corroborate market expectations of cuts by early next year.
We expect a relatively firm tone from the RBNZ, but also words that leave all doors open depending on how the data evolves from here, which could be up, down or sideways relative to their expectations.
- ANZ
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