The RBNZ hiked the OCR by 50bp to 2.50%, as widely expected, and sees it appropriate to keep hiking at pace. While noting near-term upside risk to CPI, the central bank remains resolute in its commitment to bring inflation back to its 1-3% target range. Labour, which it sees as above the maximum sustainable level, and resource scarcity are factors contributing to elevated inflation. Medium-term downside risks to economic activity are emerging as the pace of global economic growth slows.
UBS Economics sees another 50bp hike in August, with the tone/reaction function of the RBNZ yet to materially shift to dovish. By the October review, however, our economists expect enough hard evidence to allow the RBNZ to slow the pace of hikes to 25bp. By November, the OCR should peak at 3.50%. The RBNZ will likely cut by 50bp in H2 2023.
- UBS Strategy
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