Data Flash (New Zealand) RBNZ Raises Cash Rate To 5.25%
As widely expected, the RBNZ raised the Official Cash Rate (OCR) by 25 bps to 5.25% following the interim review of
monetary policy settings.
The press statement accompanying the announcement (reproduced below) confirmed that economic data over the past month
have been very much as expected by the RBNZ: domestic demand continued to be buoyant, while the international economy is
gradually recovering.
There was only a general reference to the inflation outlook in the statement, which did not point out that the annual
rate of CPI is likely to be at or close to the top of the 0-3% target range over the remainder of this year.
Overall, the RBNZ seemed intent on presenting a `no surprises' line in order to avoid fuelling an already overly
aggressive tightening profile priced by the market.
While that strategy was successful (rates did not move after the RBNZ announcement), the market is still pricing a 80%
chance of an acceleration of the tightening pace to 50 bps at the 15 May Monetary Policy Statement. Market pricing also
suggests that the OCR will reach 7.0% in early 2003.
We consider it unlikely that the RBNZ will accelerate the tightening pace in May. International data has not been
uniformly strong (with some slowdown evident in the pace of the US consumer sector), the NZD has firmed beyond RBNZ
expectations, and there are signs that domestic consumer confidence may be coming off its highs (consistent with the
rise in mortgage rates and the prospect of falling farm incomes). Those factors suggest that the rationale for a more
aggressive tightening profile than the sequence of 25 bps moves foreshadowed in March is currently very weak.
Our central expectation remains for a 25 bps rate hike in May, followed by two further 25 bps steps in early July and
mid August.
Key data to watch between now and 15 May include
external migration data (19 April);
the NBNZ Business Survey (30 April);
wage data (Quarterly Employment Survey, 2 May);
employment data (Household Labour Force Survey, 9 May);
and retail trade data for March (10 May).
Ulf Schoefisch, Chief Economist, New Zealand,