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- KiwiBank: The RBNZshould pause rate hikes during the emergency
KiwiBank: The RBNZshould pause rate hikes during the emergency
The count down to the Reserve Bank of New Zealand interest rate meeting is under way as it comes together on the 22 February next week to decide on where to set the Offical Cash Rate, OCR.
Contrary to the belief in the markets that the RBNZ needs to continue hiking rates at a rapid pace, KiwiBank says the RBNZ should pause its rate hikes, citing a national state of emergency. The suggestions comeson the heels of Cyclone Gabrielle which is causing huge devastation, especially in Hawkes Bay. The New Zealand prime minister, Chris Hipkins, was expected to travel to Gisborne on Thursday to meet residents and first responders on the ground.
Key notes
The RBNZ should pause next week, as we deal with the devastating impact of Cyclone Gabrielle. The RBNZ can come back in April and resume tightening if required.
Talk of a 50bp, or even 75bp, hike should be sidelined. The comms effort in explaining such a move in the middle of a crisis would be difficult to say the least. And it’s not warranted.
The need to tighten aggressively from here has evaporated. Inflation is peaking at lower levels. And global inflation pressures are abating. Currently at 7.2%, inflation is below the RBNZ forecast of 7.5%. Tthe balance of risks are tilted to the downside. We think the RBNZ should pause next week. Current circumstances warrant caution. But what we think they should do is not what they will likely do. We expect to see a hike, but the discussion should be around 0 or 25bps, not 50 or 75bps,
KiwiBank said in a note today.
Meanwhile, analysts at Westpac Bank said that they expect the OCR to rise by 50 basis points to 4.75% next week. ''Inflation has remained strong, but not quite to the degree that the Reserve Bank was bracing for at its November policy review.''
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