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Livesquawk - RBNZ Expected To Keep A Lid On Hike Expectations For Now
RBNZ Expected To Keep A Lid On Hike Expectations For Now

 

- Likely no changes to monetary policy settings 

- Low vaccination rate seen as near-term headwind  

- Economic growth outperforming forecasts 

- Regional banks primed for November hike 

 

 

By Harry Daniels 

LiveSquawk News 

@HarryDaniels71 

  

13 July 2021|15.00 GMT 

 

 

The Reserve Bank of New Zealand plans to change the name of its Official Cash Rate (OCR) announcements to Monetary Policy Reviews (MPR). This will likely be the only change when the central bank releases its latest monetary policy decision on Wednesday at 14.00 NZST/ 02.00 GMT. 

 

Analysts said they expect the bank’s Monetary Policy Committee to keep both its OCR (0.25%) and its large-scale asset purchase program (LSAP) unchanged.  

 

As one of the few nations to swiftly lockdown its borders in response to the global pandemic, New Zealand has seen its economy recover faster than most of its peers in the developed world. It recorded a strong start to the year, with GDP expanding 1.6% in the three months to March to outstrip the 0.5% consensus.  

 

Both housing and labour data have remained strong, maintaining momentum from the first quarter. HSBC noted that recent business surveys have also pointed to strength in the domestic economy, with activity, hiring, and investment all at high levels. “However, we still see headwinds and risks, with only around 10% of the population fully vaccinated against Covid-19, particularly given that the economy is pushing up against supply constraints around the still-closed international border.” 

 

Inflation appears to be running hot, and market expectations have recently turned distinctly hawkish. The latest CPI report is due at the end of the week, and predictions are for an annual rise of 2.7%, which is near the top end of MPC estimates.  

 

The increase in inflation expectations is also reflected in market prices. Analysts note that the New Zealand dollar is up circa 0.80%, pricing in a 2021 rate hike. This is supported by New Zealand’s 10-year bond yield trading up by some 4.5bps. Investec Economics said, “Both the RBNZ and the Bank of Canada have been leading the hawkish tilt by major central banks as of late, voicing concerns over inflationary pressures and housing market strength.  

 

“We will be watching the RBNZ for any indications of tightening on the horizon, given that New Zealand’s ‘big four’ banks are all now looking for a rate hike at the November meeting.”