Inflation is falling faster than the RBNZ expected and downwardly-revised GDP data are now consistent with labour market data showing an easing in capacity constraints.
Our measures of quarterly core inflation have declined to be only a little above the RBNZ’s 1-3% target on an annualised basis.
The RBNZ is done hiking and we expect a modest shift away from the relative hawkish comments made in late November. Chief Economist Conway’s speech on Tuesday, where he will comment on domestic data developments since the November MPS, provides an opportunity to start to change the tone.
Short-end kiwi yield spreads are at risk of narrowing and the AUD looks a bit low relative to the NZD.
The MPC meeting on 22 May is the first opportunity in our view to start lowering the OCR from the current restrictive setting.
