RBNZ Tracker

Steady as she goes

The RBNZ will issue updated forecasts tomorrow and we don’t expect major changes.

The MPC noted after the last Committee meeting on 10 April that the New Zealand “economy continues to evolve as anticipated” and, while “some near-term price pressures remain”, the MPC would likely hold the OCR at a restrictive level for a sustained period. We expect similar sentiments to emerge tomorrow.

Data received since early April has confirmed that economic activity in New Zealand remains weak and inflation, while continuing to decline, remains too high (see below).

In our major RBNZ update in late January, our view was that “[t]he RBNZ is done hiking and we expect a modest shift away from the relative hawkish comments made in late November.” At the time we noted that “[s]hort-end kiwi yield spreads are at risk of narrowing and the AUD looks a bit low relative to the NZD”.

That was a decent call, with one-way traffic ensuing in the AUD/NZD (higher) and NZ-US yield spreads (narrower) after the February RBNZ MPC meeting.

Following such large moves, we are happy to sit on the sidelines for now. We don’t expect such sizeable moves in the near-term - it would take surprisingly dovish comments from Governor Orr to prove otherwise. That’s not our expectation, yet.