MNI RBNZ Review – February 2024: High Bar To Shift Rates Either Way

EXECUTIVE SUMMARY:

• The RBNZ left rates at 5.5% and apart from updates to history and their impact on the forecasts, there was little change in its outlook, which it now has more confidence in. Governor Orr noted as a result the MPC is now more tolerant of upside inflation risks than it was. The threats of further tightening were toned down compared to November.
• A tightening bias was retained by the central bank though as there is “limited tolerance to increase the time to the target mid-point”, a hike was discussed but not a cut, and the peak in the OCR path is still above the current rate. Orr also said that while the risks to inflation are now seen as “more balanced” due to a combination of factors, its reaction function remains asymmetric towards upside risks as inflation is still above target.
• RBNZ dated OIS pricing has a cumulative 74bps of easing priced by year-end from an expected OCR peak of 5.54%.
• The RBNZ appears to be firmly on hold for now barring some unexpected shock. The economy is developing broadly as expected but policy needs to remain restrictive to bring inflation back to target. The OCR path has rates on hold this year and Orr reiterated that it is too early to discuss easing, which the MPC didn’t do in February.

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MNI RBNZ Review - February 2024.pdf