Reserve Bank of New Zealand Preview: Forecasts from seven major banks

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, May 26, at 02:00 GMT. Governor Adrian Orr’s Orr will hold a press conference at 03:00 GMT. The RBNZ is likely to maintain its monetary policy settings and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming central bank's meeting. 

In the view of FXStreet’s Dhwani Mehta, kiwi’s fate hinges on any hawkish hints.

Westpac

“We expect the RBNZ will leave its monetary policy settings unchanged. The economic outlook has improved on balance, despite a soft patch in growth over the summer period. Inflation is expected to rise well above 2% this year, but the RBNZ has already foreseen this and will regard it as temporary. The RBNZ’s forward guidance will again emphasise the need for a sustained return to the inflation target, and employment at or above maximum sustainable levels. We expect OCR hikes will begin only in early 2024, although unconventional monetary policy measures will unwind before then.”

ANZ

“We are now forecasting the RBNZ to begin raising the OCR in August 2022, with gradual but steady increases thereafter taking the OCR to 1.25% by the end of 2023. In the May Monetary Policy Statement, the RBNZ will again revise up its forecasts for GDP, employment and inflation. However, consistent with its ‘least regrets’ approach we expect the RBNZ will continue to signal that removal of policy stimulus remains a long way off. We expect the forecastOCR track (assuming it’s published) to suggest perhaps the second half of 2023 for OCR lift-off. We do not expect any changes to the LSAP or FLP programmes. Markets are likely to seize on any change in language or forecasts in a less-dovish direction.”

CE

“We think the RBNZ will leave settings unchanged. In response to surging house prices, the government altered the RBNZ’s mandate to require the Bank to devote more attention to house price growth. Even so, it’s clear that the Bank does not consider monetary policy to be an appropriate tool for tackling house price growth. We think the Bank’s preference now would be to use debt to income (DTI) restrictions. The Minister of Finance is currently assessing whether to grant the Bank authority to impose DTI restrictions. Even if the Minister doesn’t give the Bank further tools it seems unlikely that the Bank would tighten monetary policy merely to rein in surging house prices. Even so, we think the economic recovery will eventually prompt the Bank to tighten policy.”

Standard Chartered

“We expect the RBNZ to keep monetary policy settings unchanged (including policy rate, large scale asset purchase programme and funding for lending programme). The central bank is also likely to stick to its ‘least regrets’ approach and maintain its dovish communication. The central bank is wary of the risk of sustained higher headline inflation feeding into higher inflationary expectations. However, we do not think it would be too concerned about inflation expectations rising too high and pointing to overheating risks at this stage (our base case). However, our risk scenario sees a possibility that the RBNZ may caveat its dovishness, for example by acknowledging the rise in inflation expectations and noting that such a sustained phenomenon may warrant action by the central bank. Markets may then read this as a less dovish tilt.”

Danske Bank

“We expect the RBNZ to keep rates unchanged.”

ING

“There is a rather contained risk of hearing any radical shift in the policy stance, although an expected lower bond issuance in New Zealand may prompt the Bank to start signalling the pace of asset purchases will slow. The jobs market has continued to prove strong by taking opposite directions to the pessimistic one seen in the February RBNZ projections, and commodity prices have boosted the NZ terms of trade. New economic projections will be released, and focus will be not only on the unemployment gauge but especially on the growth and inflation figures, which were weaker than expected in February. Overall, we expect the balance of risks for NZD to be tilted to the upside ahead of the meeting, considering there is not much room for the RBNZ to sound reasonably more dovish and there is a possibility that the Bank will start talking about tapering.”

TDS

“The RBNZ will table a new set of forecasts in the May MPS. Expect the Bank to revise its unemployment forecasts lower but with no appreciable lift in its inflation forecasts. The Bank is likely to reiterate 'considerable time and patience' is required to meet its objectives to begin hiking. Of more interest is whether the Bank will reintroduce its forecast OCR track.”