📝 N.Z. Weaker Q1 Activity May Not Mean Soft H1: ANZ

For the RBNZ, a miss on their forecast (+0.7% q/q) may not carry much in the way of implications for their view of appropriate monetary policy settings – particularly if they tee this up to stronger-than-expected capacity pressures. To the extent that Omicron disruption weighs on Q1, then we (and possibly the RBNZ) may look to factor in some rebound in Q2 as these impacts dissipate. In other words, weaker Q1 activity may not necessarily mean weaker H1 activity. Markets, on the other hand, will do what markets do, and a stronger-than- consensus print would likely reaffirm pricing along the lines of the RBNZ’s May MPS forecast (which had a peak OCR of almost 4%, with at least two more 50 pointers in the near term). However, a weaker read will likely see markets carry a little more sympathy for our view that the OCR will peak at 3.5% and that there’s only one more 50-pointer to come (July) before the timely data deteriorate sufficiently to suggest that 25bp hikes better reflect the balance of risks. Indeed, if the RBNZ focus solely on core inflation and labour market indicators (both of which tend to be slow moving and lag the broader economic cycle), then they are almost guaranteed to oversteer and induce a harder landing than intended or quite possibly necessary. But at the same time, the GDP data are still very noisy. - ANZ Economic Research