The RBNZ Deliberately Softened Their Language, A Touch. We’re More Convinced Of A Cut In Nov.

• Another MPR, and another hold. As expected, the RBNZ kept the OCR unchanged at 5.50%. But importantly, we finally got a noticeable softening in tone. It was a welcome shift given the total collapse in business confidence last week. Enough is enough
• The economy is clearly responding to restrictive monetary policy. Economic activity looks likely to contract over Q2 and unemployment is set to rise further. We expect inflation to fall in line, eventually.
• With a softening in language and tone, we, along with all market traders, have grown in confidence that a rate cut should be delivered this year. Market pricing has moved to price in a full 60bps of cuts by November, with the first 25bp cut for October. We agree with the market, but don’t think the RBNZ will deliver as much as priced. Regardless, it’s good news for most businesses and households.

10 July 2024

The RBNZ left the cash rate unchanged at 5.5% today, no surprise. But the RBNZ’s language softened, just a touch. And we, along with all market traders, have grown in confidence that a rate cut could be delivered this year – not the end of next year, as the RBNZ forecast in May.

The RBNZ’s softening in tone reflects the collapse in business confidence, and the gallows level of confidence amongst households. The RBNZ referred to firms hiring decisions, with the increase in labour supply, and investment intentions. See our special section on business confidence below.

Another notable change, or tweak, was the reference to inflation piercing below 3%. In the May’24 MPS summary record of meeting - “The Committee noted that annual headline CPI inflation was expected to return to the target band in the December quarter of this year.”

In today’s MPR summary record of meeting – “The Committee is confident that inflation will return to within its 1-3 percent target range over the second half of 2024.”

It doesn’t sound like much, but it opens up the door to rate cuts this year. The change in language reflects (Kiwibank’s forecast of 2.9% in the September quarter) the very high probability that inflation breaks below 3% sooner than their December quarter forecasts. Inflation is falling faster.

This was part of just a 176-word statement. We didn’t know economists could be so succinct…

© Scoop Media