Low inflation has already seen the RBNZ cut the Official Cash Rate to a record low. Now, although inflation is likely past its nadir, it’s only set to climb at a gradual pace – likely too gradual for the RBNZ’s liking. The RBNZ has essentially told financial markets that the OCR will be cut at the time of the August Monetary Policy Statement. We expect that they’ll cut rates again towards the end of the year.
The RBNZ will next review the OCR on 11 August. Much of the mystery around this decision has already been removed following an unscheduled economic update just over two weeks ago. That terse statement highlighted the RBNZ’s clear discomfort with the lingering strength in the NZ dollar, which is currently around 6% higher than they had been expecting. That’s a fairly sizeable surprise, and leaves the central bank fighting an uphill battle to achieve its inflation goals.
Inflation has now been below the bottom of the RBNZ’s target band for two years. In part, this has been due to temporary factors that have dampened prices, including earlier weakness in international oil prices. Inflation is set to rise back into the RBNZ’s target band over the coming year as those temporary downside influences pass. However, beyond this, the expected pick-up in inflation is looking like it will be fairly gradual.
The key reason for the lingering softness in inflation is ongoing weakness in tradables prices. The prices of imported goods remain subdued, while price competition in the retail sector remains intense. Combining these conditions with a NZ dollar that’s continuing to defy gravity, and we’re likely to see declines in tradable prices for some time yet.
All information contained on this website is given in good faith and has been derived from sources believed to be accurate. However, the information is selective and neither Westpac nor any other company in the Westpac Group have verified the information, which may not be complete or accurate for your purposes. Those companies make no representation or warranty of any kind as to the accuracy or completeness of the information. It is general information only and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. Neither Westpac nor any other company in the Westpac Group nor any of their directors, employees and associates guarantees the security of this website, gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way including by reason of negligence for, errors in, or omissions from, the information on this website and does not accept any liability for any loss or damage, however caused, as a result of any person relying on any information on the website or being unable to access this website. This disclaimer is subject to any applicable contrary provisions of the Australian Securities and Investments Commission Act and Trade Practices Act.
Recommended Content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold price sits at all-time highs above $2,230, US PCE eyed
Gold price hit all-time highs at $2,236 on Thursday to finish Q1 2024 with a bang. Most major world markets, including the US are closed due to Holy Friday, leaving volatility around Gold price highly subdued. US PCE inflation and Powell are awaited.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.