Last week’s RBNZ statement took some small but significant steps in paving the way for rate hikes in coming months.
General opinion ahead of the OCR review was that nothing had changed since the December Monetary Policy Statement, with recent activity and inflation data panning out much in line with the RBNZ’s projections. Of course that’s not quite true: what’s changed is that we’re seven weeks closer to the anticipated starting date of the tightening cycle, and by now the timeline is getting fairly short (the RBNZ’s expectation of “around the middle of 2010” implies between three and six months). The changes in the language of the statement were aimed at strengthening the message that a tightening cycle is indeed on the way.
While the data has largely met expectations, that in itself has helped to resolve some of the uncertainties that the RBNZ have noted in recent statements.
In particular, they appear to have ditched their assumption that the resurgent housing market would not feed through to consumer spending to the same degree as in the past. The RBNZ noted that credit growth remains subdued, though even that may not be as reassuring as it seems: the latest figures show that housing debt grew by 3.3% in 2009, a much slower pace compared to previous years, but still likely to have outstripped income growth in that time.
The significant changes came in the last paragraph of the statement. In December the RBNZ stated that if the recovery continues as expected, “conditions may support beginning to remove monetary stimulus around the middle of 2010”. This time they noted that “we would expect to begin removing policy stimulus around the middle of 2010”. No apparent change in the timing, but the new wording gives a stronger sense of the likelihood of rate hikes by mid-year.
