The RBNZ may take a more hawkish tilt

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, August 17 at 02:00 GMT.

After July’s central bank meeting, the RBNZ hinted at concerns about slowing growth. Even heading into July’s meeting, the Bank of New Zealand head of research warned that the latest ANZ Bank survey of business opinion was ’littered with indicators that the economy is headed into recession. As a result, there are more reasons for the RBNZ to take a dovish tilt tomorrow, August 17.

As part of its meeting tomorrow, the Reserve Bank of New Zealand is widely expected to raise the official interest rate by 50 basis points while raising the benchmark rate to 3%. This will be the fourth consecutive increase for the Reserve Bank of New Zealand by 50 basis points in a tightening cycle that began in October.

Despite a slight increase in the unemployment rate to 3.3% in the second quarter, the labor market remains tight beyond the “maximum sustainable” level and inflation at 7.3% y/y is miles above target.

The Reserve Bank of New Zealand will likely revise its high inflation forecast and repeat its forecast for a final interest rate of 3.9% by mid-2023.

The unemployment rate was up to the highest estimate at 3.3%. The QoQ change was down to 0% from 0.4% expected and the participation rate fell too at 70.8% vs 71% expected.

here are the expectations forecast by the three major banks’ economists and researchers.

BofA

“We expect the RBNZ to deliver another 50 bps hike to lift the OCR to 3%. While policy guidance should remain hawkish in light of price pressures, there is risk the Bank may introduce more conditionality on the scale of subsequent policy front-loading. The quarterly Monetary Policy Statement should reflect both modest changes to the OCR track, and unveil softer growth and labour market forecasts. But signs of an inflation peak are not yet in sight.”

Westpac

“We expect the RBNZ to raise the OCR by another 50 bps to 3%. The RBNZ is likely to maintain a similar path for its OCR projections, in contrast to financial markets which have moved to price in a lower peak for this cycle and an earlier start to interest rate cuts. Continuing to tighten monetary policy ‘at pace’ would send a message that while the fight against inflation is well underway, a declaration of victory is a long way off.”

TDS

“We expect RBNZ to lift the OCR to 3%. Recent data suggest that the RBNZ’s job is not done and near-term risks to inflation should dominate the Bank’s thinking. Updated economic forecasts and the new OCR path will garner market attention.”

NZD

The NZD/USD pair adds to the previous day’s heavy losses and witnesses some follow-through selling for the second successive day on Tuesday. As a result, the pair extends its descent through the early European session and drops to a four-day low, around the 0.6325 regions in the last hour.

Following a brief consolidation, the US dollar regains positive traction for the third straight day and climbs back closer to the monthly peak. This turns out to be a key factor exerting downward pressure on the NZD/USD pair and supports prospects for a further near-term depreciating move.