RBNZ Orr: Can’t rule out a recession

Following Tuesday’s Reserve Bank of New Zealand’s interest rate decision, the governor, Adrian Orr said, Wednesday that he can’t rule out a recession but he does not predict it is inevitable.

Orr also said an increasing labour force will push the jobless rate up and that government spending is adding to aggregate demand at present.

Analysts at ANZ Bank wrote a note with respect to the outcome of the Reserve Bank of New Zealand explaining that the RBNZ Monetary Policy Committee yesterday described themselves as “resolute” in their inflation fight, while acknowledging “strong” growth headwinds.

Key Quotes:

”There’s clearly been a big change of mood since April, when ‘The Committee remained comfortable with the outlook for the OCR as outlined in … February.’ It’s not entirely clear what the driver of that change has been, given inflation and labour data has actually come in much as the RBNZ expected.”

”Some of it will be due to the bigger-spending Budget (though in the press conference the Governor described the extra fiscal spending as small beer in the greater scheme of things); QES wage pressure also picked up markedly (not the RBNZ’s preferred measure, but the big upward revision to the RBNZ’s wage forecast was notable).”

The 50bp rise was expected, but the OCR track reaching as high as 3.95% wasn’t, nor was its steepness, which implied further 50bp hikes in both July and August.