RBNZ Governor Breman’s speech this morning - Global shockwaves to Kiwi shores: The impact of the Iran conflict on New Zealand - pushed back against market pricing for the OCR.
Our view is that market participants have been getting way ahead of themselves is terms of the degree of OCR increases priced in for this year (up to +90bps).
The NZ economy has significant spare capacity and even though it has turned the corner, the adverse growth consequences of the Middle East conflict come at an inopportune time.
The Governor’s opening remarks said it all:
“…core inflation has been steady at 2.4 percent for some time. We are at the early stages of an economic recovery. Inflation expectations over the medium term remain well anchored, and wage growth is subdued.”
The starting point for underlying inflation - based on our quarterly seasonally adjusted measures - is low and broadly consistent with the mid-point of the 1-3% target.
