RBNZ rate hikes on the way – sooner and higher

Analysis on the Reserve Bank of New Zealand OCR track ahead vai KiwiBank.

This in brief from a more detailed note:

  • Given the array of better-than-expected data, the RBNZ’s forecasts will be shunted higher. Monetary policy is simply too loose for an economy running through full employment. And inflation is 2%pts above the top of the RBNZ’s mandated 1-to-3% target band. 
  • We expect the RBNZ to adjust their OCR track by pulling forward forecast hikes, and pushing higher the end point. 
  • RBNZ is likely to move the OCR track in keeping with our forecast for the cash rate to reach 2%, by this time next year. 
  • Beyond 2022, the OCR track is likely to mechanically push toward a higher end point of ~2.4% – upgraded from the prior end point of 2.1% from the August MPS.

But say the analysts, market pricing for the extent of hikes is likely overdone:

  • Despite the inevitable lift in the RBNZ’s OCR track, the reaction in financial markets may be muted … At this stage in the cycle, we feel rates markets have been pushed too far. …  financial markets have moved too far, too fast.

The next hike from the RBNZ is likely to be later this month:

Analysis on the Reserve Bank of New Zealand OCR track ahead vai KiwiBank.

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