Reserve Bank of New Zealand Preview: Forecast from eight major banks

The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its Monetary Policy Statement this Wednesday at 01:00 GMT while Governor Adrian Orr’s Orr will hold a press conference at 02:00 GMT. As we get closer to the release time, here are the forecast by the economists and researchers of eight major banks regarding the upcoming central bank's meeting. The RBNZ is seen maintaining the Official Cash Rate (OCR) at a record low of 0.25% for the sixth straight month in February.

Heading into the RBNZ decision, NZD/USD rides higher on the global reflation wave, amid rising inflation expectations, which has fuelled a new commodity supercycle.


“We expect that the RBNZ’s commentary will strike a more constructive note on the economy. Despite that, we expect that the RBNZ will leave its monetary policy settings unchanged. We expect the RBNZ will keep the OCR at 0.25%, the Large Scale Asset Purchase programme (LSAP) cap will remain at $100 B for now, and the Funding for Lending Programme (FLP) will remain in place. We expect the RBNZ’s key message will be that it intends to keep monetary policy very stimulatory for an extended period, even if inflation pops higher in the near term. However, the RBNZ might talk less about looming downside risks, and will probably not actively promote the possibility of further OCR cuts, as it did over most of last year.”


“With the economic picture considerably brighter than in November, the RBNZ will revise up its forecasts for GDP, employment and inflation.  That said, we expect the RBNZ will signal that removal of policy stimulus remains a long way off. We may see the addition of further forward guidance, stressing that the policy outlook is highly conditional on developments and that OCR hikes remain a long way off, potentially even putting a (highly conditional) date on it (2023at the earliest). We expect the time-frame of the LSAP programme to be extended to the end of 2022, in line with lower bond issuance and policy remaining stimulatory for some time yet. Expressing the LSAP programme in terms of the pace of purchases (rather than its $100 B limit) would provide needed clarity to markets, and would assist in communicating eventual tapering. A change in communication could occur as early as next week. Markets have moved a long way since November, with a small chance of OCR hikes priced in over the next two years.”

Capital Economics

“Economic data since the Bank’s last meeting have shown the New Zealand economy recovering at a remarkable pace. The case for further monetary stimulus is therefore weak. As such, we expect the Bank will keep policy settings unchanged. As the economy continues to recover, we expect the Bank to end asset purchases by the middle of this year and hike rates in 2022.”


“The activity in New Zealand is practically above the pre-pandemic levels and inflation (at 1.4%) is much closer to the central bank target’s mid-point (2%) than in Australia (0.9% vs a 2.5% target). We think the RBNZ will have to acknowledge such improvement in the outlook, but Governor Orr will likely maintain a very cautious stance – i.e. leave the door open for more easing – so as not to sound too hawkish. Still, a more upbeat tone on the outlook may prompt markets to start chipping in some tapering bets for later in the year (the RBNZ has already started to reduce the size of weekly bond purchases), and NZD may come out stronger from the meeting.”


“Expect the RBNZ to keep all policy settings unchanged – OCR at 0.25%, the LSAP at NZD100 B to mature Jun'22 with the FLP operational. Bank upgrades to its GDP, TWI and inflation forecasts and a lower u/e profile are likely. The RBNZ is likely to acknowledge the recovery is underway but patchy and that downside risks remain even if less pressing than before. We expect the Bank to highlight OCR hikes are not on its radar. It could signal this by stressing the need for data to consistently track above its remit, less regret with overshoot or it could extend the LSAP maturity date (pushing out the prospect of a future OCR hike). The Bank is already in taper mode. We expect RBNZ weekly bond purchases to continue at ~NZD575M-600M per week to Q2'21 and for bond-buying to slow further after that.”

Standard Chartered

“We expect the RBNZ to keep the official cash rate unchanged at 0.25% and do not see new easing measures being announced. Despite better-than-expected data recently and rising inflation expectations, we do not expect the RBNZ to turn hawkish at this meeting; it is likely to maintain its accommodative stance.” 


“We suspect the RBNZ may deliver a dovish hold this time. Since the last meeting, the curve has steepened sharply, with the 20-year yield up over 100 bp, while NZD has gained 7% against USD, second only to AUD during that time. While the economic data have been coming in firm, these developments are serious headwinds on the economy and we do not think the RBNZ was prepared for this reaction. As such, we expect some dovish pushback from the bank this week.”


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