RBNZ likely to leave OCR unchanged at next week’s monetary policy meeting; first hike seen by late 2019: ANZ Research

The Reserve Bank of New Zealand is poised to leave the benchmark Overnight Cash Rate (OCR) unchanged at its monetary policy meeting, scheduled to be held by mid of next week, according to the latest report from ANZ Research.

In a scenario where the country’s economic growth is slowing, coupled with rising rate of inflation, the central banks’ monetary policy outlook has become a little complicated. Inflation looks set to lift and the CPI outlook is perhaps a bit stronger at the margin. CPI inflation was in line with the May MPS forecast in Q2, but core inflation has edged up. The TWI is a little lower and oil prices are a little higher.

The central bank is stuck in the middle of a trade-off – focus on inflation or on economic growth? Either way, too much attention to CPI or on growth, will wipe out other major issues that can affect the policy outlook at this juncture. Policy deliberations for the August Statement will – and should – be focused on the policy tension that the RBNZ faces and how it sees the balance of risks, the report added.

However, the RBNZ cannot completely ignore these dynamics; it will rather, keep a close watch on the inflation statistics and wage growth precisely, so that their policy remains on the right path. The central bank will hope to see a core inflation moving closer to the mid-point of the target range, before it adopts an OCR hike, particularly owing to the modest outlook in activities.

"We expect to see the RBNZ reiterate its recent neutral messaging, even though an OCR cut now looks less likely. If inflation increases in line with our expectations, the OCR will eventually need to rise – but not any time soon. We continue to pencil in late-2019 for an eventual hike, but a lot could – and probably will – happen between now and then," the report commented.