Westpac Institutional Bank Team
Westpac Institutional Bank
Heading into the countdown to the RBNZ’s OCR Review, last week delivered a downside surprise on inflation and another drop in dairy prices. However, this week we should get another instalment of ultra-strong net migration data.
Last week’s Consumer Price Index revealed that inflation ticked down from 1.6% to 1.5% in the March quarter. This was well below the market median forecast of 1.7%, and came as a shock to markets that have become accustomed to New Zealand data that goes only upwards. Our own forecast was 1.6% and we saw the risks to the downside, so we were less surprised.
What really matters here is the Reserve Bank’s take on the data. Back in the March Monetary Policy Statement the RBNZ signalled a front-loaded and extensive OCR hiking cycle on the basis that inflation pressures were building. Its interest rate forecast implies that it was planning to hike the OCR in April, June and July, on top of the hike already delivered in March.
But that was based on a forecast of inflation reaching 2% by June. It now looks more like inflation will be only 1.6% at that point. The question that naturally arises here is, will the RBNZ change its plan? As always, the answer lies in the detail.
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