RBNZ Preview: Forecasts from seven major banks, pushing back against rate cuts

We expect the RBNZ to maintain the OCR at 5.50%. We think it is premature to expect any rate cuts in November, considering that CPI inflation eased to a still-elevated 5.6% YoY in Q3-2023. We continue to expect the first rate cut to materialise in May 2024 on the expectation that growth concerns will become more salient in H1-2024. Risks to our view include more persistent inflationary pressures on the back of continuing macroeconomic resilience, keeping wage growth and the labour market well-supported.

We expect the RBNZ to hold the OCR unchanged at 5.50%, and publish an OCR track that is very similar to August (with a peak of 5.59% but potentially later cuts). We don’t expect the RBNZ’s medium-term forecasts for either activity or non-tradable inflation to change significantly (though we’d note ours are higher), with the overall theme continuing to be ‘so far so good.’

We expect the RBNZ will leave the OCR unchanged at 5.50%. The RBNZ’s forward profile for the OCR is likely to be little changed and suggests no change in the OCR in 2024. On balance, recent data will have left the RBNZ more comfortable with an ‘on hold’ stance. Notably, price data indicates that imported inflation is easing faster than previously anticipated. In addition, we have continued to see weakness in cyclical demand indicators, such as retail spending, the PMIs, credit growth and imports. Short-term inflation forecasts will be reduced, but the longer-term profile will likely be little changed. The RBNZ will be keen to ensure that much of the recent increase in mortgage rates remains in place for a while. 

We expect an unchanged rate decision.

We expect the RBNZ to stay on hold, keeping the OCR at 5.50%. While it is an MPS month which entails an updated OCR track, we don’t expect major revisions to the Bank's OCR projection as the RBNZ is likely to keep a hawkish tone to avoid speculation of earlier rate cuts. Overall, the Bank appears content with current monetary policy settings and is cognizant that any premature speculations of easing may drive up asset prices and halt the Bank's current progress.

Unlike in Australia, CPI in New Zealand is moderating more quickly than the RBNZ’s timetable. It is therefore likely that the RBNZ will mark to market the November edition of the CPI forecasts lower to reflect this. In addition, weaker NZ Q3 labor market data shows supply and demand is in the process of rebalancing and the MPC can deliver a neutral policy assessment and hold the OCR unchanged at 5.50% for the fourth consecutive meeting. However, the RBNZ is unlikely to unwind language designed to maintain expectations that rates need to remain restrictive. However, the risk is that the policy statement may bring forward moderation in the OCR track from Q1’25 to Q4’24. We continue to expect no further OCR increase in this cycle and for the first OCR cut to occur in Q2’24.

We do not anticipate any changes to the OCR of 5.50%, and OIS futures suggest that a change in the policy rate is virtually zero chance. What will be interesting to watch is whether the RBNZ updates its guidance on the peak in the OCR (currently projected at 5.5o%), or the timing of a first rate cut in New Zealand. The RBNZ currently doesn’t expect a cut until early 2025, whereas we see this as more likely to occur in the final quarter of 2024.