27 Mar 2014
RBNZ keen to get rates back toward 4.25% - 4.50% asap - BNZ
FXStreet (Bali) - According to the Economics Team at Bank of New Zealand, the ongoing rate hiking cycle by the RBNZ will be at 5.00% by the end of the Bank’s forecast horizon, not ruling out the possibility of even higher projections.
Key Quotes
"The RBNZ repeated its regular mantra that the “The Bank does not believe the current level of the exchange rate is sustainable in the long run”. However, it does seem more accepting that the strong currency represents the relative strength of the NZ economy. Its own NZ TWI forecasts show the currency holding up not far from current levels over the next two years."
"Overall the MPS left the clear message the Bank sees growth momentum in the economy and inflationary pressures picking up. It is keen to get the OCR back toward ‘neutral’ (circa 4.25%-4.50%) as quick as possible."
"We concur with the RBNZ that the OCR and floating rates, need to move from ‘abnormally’ low levels to more normal levels quite promptly. We see steady 0.25% hikes at each of the next RBNZ meetings, taking the OCR to 3.50% by July. We also anticipate the RBNZ will be keen to get several rate hikes in place ahead of the 20 September election."
"We see further rate hikes thereafter to take the OCR to 4.00% by year-end and to 5.00% by the end of 2015. This is the same level as the RBNZ’s own forecasts but slightly earlier. We see 4.0% GDP growth this year and 3.4% next. We do not see a lot of excess capacity in the economy to be able to absorb this level of growth. Indeed, we see leading indicators of inflation already picking up e.g. businesses pricing intentions, employment intentions and inflation expectations. From 1.6% currently we see inflation picking up the top of the RBNZ’s 1-3% target band by mid-2016."
"An upside scenario could see the OCR peak as high as 5.50%. Factors that could drive this outcome are: upside risks to growth eventuate; NZ commodity prices rise further; momentum in the Canterbury rebuild spills over to broad inflation; the NZD depreciates faster than expected, or house price appreciation does not moderate as expected."
"A downside scenario could see the OCR peak at just 4.25% i.e. only get back to ‘neutral’. Factors that could drive this scenario are: initial OCR hikes ‘bite’ the economy more than expected; the NZ TWI appreciates further; a serious, wide-ranging global risk event unfolds; downside risks to the Australian/China growth outlook eventuate."
Key Quotes
"The RBNZ repeated its regular mantra that the “The Bank does not believe the current level of the exchange rate is sustainable in the long run”. However, it does seem more accepting that the strong currency represents the relative strength of the NZ economy. Its own NZ TWI forecasts show the currency holding up not far from current levels over the next two years."
"Overall the MPS left the clear message the Bank sees growth momentum in the economy and inflationary pressures picking up. It is keen to get the OCR back toward ‘neutral’ (circa 4.25%-4.50%) as quick as possible."
"We concur with the RBNZ that the OCR and floating rates, need to move from ‘abnormally’ low levels to more normal levels quite promptly. We see steady 0.25% hikes at each of the next RBNZ meetings, taking the OCR to 3.50% by July. We also anticipate the RBNZ will be keen to get several rate hikes in place ahead of the 20 September election."
"We see further rate hikes thereafter to take the OCR to 4.00% by year-end and to 5.00% by the end of 2015. This is the same level as the RBNZ’s own forecasts but slightly earlier. We see 4.0% GDP growth this year and 3.4% next. We do not see a lot of excess capacity in the economy to be able to absorb this level of growth. Indeed, we see leading indicators of inflation already picking up e.g. businesses pricing intentions, employment intentions and inflation expectations. From 1.6% currently we see inflation picking up the top of the RBNZ’s 1-3% target band by mid-2016."
"An upside scenario could see the OCR peak as high as 5.50%. Factors that could drive this outcome are: upside risks to growth eventuate; NZ commodity prices rise further; momentum in the Canterbury rebuild spills over to broad inflation; the NZD depreciates faster than expected, or house price appreciation does not moderate as expected."
"A downside scenario could see the OCR peak at just 4.25% i.e. only get back to ‘neutral’. Factors that could drive this scenario are: initial OCR hikes ‘bite’ the economy more than expected; the NZ TWI appreciates further; a serious, wide-ranging global risk event unfolds; downside risks to the Australian/China growth outlook eventuate."