TD’s conviction for the RBNZ to hike next year has grown in the wake of 1) the inflationary impact of the Labour coalition’s policies and 2) the RBNZ’s acknowledgement that inflation pressures have picked up following the sharp drop in the TWI between August and November.
“The Bank accordingly lifted its 2018 forecasts above 2% for 2018. However near-term uncertainty regarding the election fallout on the economy and on confidence along with limited clarity on who the next RBNZ Governor will be means a February hike is less likely and accordingly this is removed from the forecast profile.”
“So far the market is placing a very low chance on the RBNZ hiking on TD’s forecast path as the market frets over a softening in house prices and a lower growth trajectory. However, our macro strategists consider these secondary issues as the risk of inflation hitting 2% materializes earlier (in Q3 2018, not Q1 2019) and trending higher, forcing the RBNZ to take action. TD pencils in two RBNZ hikes next year, for May and November.”
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