RBNZ Preview: Forecasts from six major banks, OCR on ice at 5.50%

We expect the RBNZ will leave the OCR unchanged at 5.50%, reiterating their ‘watch, worry and wait’ stance. Data since the July nothing-to-see-here Monetary Policy Review has been mixed, with relatively resilient demand but inflation indicators falling according to the script – an attractive mix, but one of questionable sustainability. As always, there’s a huge amount of wiggle room in terms of how the Committee interprets the implications of the recent data flow. We don’t expect a hat-tip to the chance of more hikes in this Statement, but the OCR forecast may show rates remaining at their peak for a little longer.

We expect the RBNZ to keep the OCR at 5.50 with little reason for change in either direction. Given the still-tight labour market and elevated inflation, it would be premature for the RBNZ to mull rate cuts. Instead, we think the RBNZ will keep the OCR on ice and reiterate the need to keep the policy stance restrictive for the foreseeable future. We expect rate cuts only from Q2-2024 once higher rates and the migration-fuelled boost to labour supply percolate through the economy.

While it is an MPS month that entails an updated OCR track, we don’t expect major revisions to the Bank's OCR track as economic data have largely panned out to the RBNZ's forecasts. We expect Governor Orr to reiterate that the Bank is confident that past rate hikes are having their intended impact on consumption and inflation which implies a high bar for further hikes.

We think the Bank will publish an interest rate track that is almost identical to the May MPS. This means no change to the current 5.50% cash rate and forecasts for it to stay that way until late 2024. Markets are well priced for no change. 

The RBNZ will keep the OCR at 5.50% at its August policy meeting and retain its baseline forecast that the rate cycle has peaked. The Bank’s forecast for the OCR should continue to indicate rates on hold until August 2024, falling slowly thereafter. Economic developments will likely be viewed as broadly mixed and so will likely lead to only modest changes in the Bank’s growth and inflation forecasts. Weaker than expected March quarter GDP and a softer outlook for the external sector are balanced against a firmer housing market and persistent domestic inflation pressures. The Bank will likely emphasise that any future move in policy will depend on the emerging data flow at home and abroad.

The RBNZ is unlikely to deliver any surprises in the August MPS and keep the policy rate unchanged at 5.50%. The data since the previous MPS has been broadly neutral. One on hand, growth surprised on the downside and the economy entered a technical recession. On the other, inflation – especially non-tradeables – has surprised slightly on the upside while employment growth was also stronger than expected. Wages growth has been slightly softer but still remains above 4%. Other forward indicators such as business confidence and the housing market still point to moderation in growth over the year ahead. The Statement is also expected to remain neutral, although the risk is still tilted towards the hawkish side.