RBNZ to downshift to 25 bps increase in April as tightening nears an end
reuters://realtime/verb=Open/url=cpurl%3A%2F%2Fapps.cp.%2FApps%2Fcb-polls%3FRIC%3DNZINTR%253DECI poll data
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=NZGDPAP GDP poll data
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=NZINFAP inflation poll data
Reuters Poll graphic on New Zealand monetary policy and economy outlook: https://tmsnrt.rs/3nzB2Md
By Devayani Sathyan
BENGALURU, March 31 (Reuters) -The Reserve Bank of New Zealand will scale back its tightening pace to a quarter-point rate hike on Wednesday as inflation runs hot even as the economy slows, according to a Reuters poll of economists who were split on where rates would peak.
New Zealand's economy is expected to have shrunk 0.3% this quarter, following a 0.6% contraction in the final three months of 2022, indicating a mild recession that is likely to prompt the RBNZ to slow its torrid pace of rate hikes.
With inflation still running close to a three-decade high of 7.2%, more than double the central bank's target range of 1%-3%, the RBNZ likely has more work to do before pausing its most aggressive campaign since introducing the cash rate in 1999.
Over 90% of economists, 22 of 24, in a March 27-30 Reuters poll said the RBNZ would hike the cash rate NZINTR=ECI by 25 basis points to 5.00% at its April 5 meeting, the highest since December 2008. Only two expected a pause.
The latest move would follow a 50 basis point rise in February, for a total of 450 basis points over the past 18 months.
"The labour market is still very tight and inflation expectations still very high. While the economy is cooling, it is not doing so rapidly. So, the Reserve Bank can't yet be confident they have done enough," said Sharon Zollner, chief economist at ANZ.
The largest banks in the country, ANZ, ASB, Kiwibank, Bank of New Zealand and Westpac, all expected a 25 basis point hike on Wednesday, in line with market pricing. 0#RBNZWATCH
Although the central bank forecast inflation would return to within the target range in the third quarter of next year, economists were split on where rates would peak.
A significant minority polled, 10 of 21, predicted another 25 basis point hike in May to reach 5.25%, a touch below the RBNZ's own terminal rate forecast of 5.50%. The remaining 10 expected rates to stay at 5.00% and one said 4.75%.
Eight of 10 respondents who answered an additional question said the bigger risk to their terminal rate forecast was it would be higher than they predicted, while the remaining two said it was that it would be lower.
"The RBNZ are hell-bent on breaking the back of the inflation beast, with their thoughts centered around a 5.50% terminal rate. That would be a step too far, and cause a deeper recession than they forecast," wrote Jarrod Kerr, chief economist at Kiwibank.
"We believe the RBNZ should hike to 5.00% and pause. Enough is enough, and the RBNZ has done more than enough. (But) the risk is clearly tilted to more hikes than we expect."
The poll showed inflation would remain above the RBNZ's 1%-3% target range until mid-2024. It was expected to average 5.1% this year and slip to 2.6% in 2024, matching January predictions.
New Zealand's economy was expected to grow 1.2% this year, a downgrade from 1.5% predicted previously. It was expected to grow 1.4% in 2024.
(For other stories from the Reuters global long-term economic outlook polls package: nL4N3620SS)
Reuters Poll: New Zealand monetary policy and economy outlookhttps://tmsnrt.rs/3nzB2Md
Reporting by Devayani Sathyan; Polling by Anant Chandak and Madhumita Gokhale; Editing by Vivek Mishra, Ross Finley and Christina Fincher
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.