Asia/Pacific November 23, 2022 / 05:58 am UTC

RBNZ Hawkish Hike

By Cephas Kin Long Yung

RBNZ surprised the market with significant upward revision in OCR path

RBNZ Revised OCR Projection Upward

The 75bp hike was widely expected, but the statement on the decision and the monetary policy statement gave us a hawkish surprise. Some key takeaways:

  • Strong Domestic Demand: The RBNZ recognized the strong domestic demand despite global headwinds, with emphasis on steadily high household spending even when inflation and OCR are both high. The revival in tourism also outpaced RBNZ's forecast and contribute to stronger demand.
  • Higher Wage inflation: The RBNZ  noted that demand for workers is remain robust and such worker shortage is holding NZ business back with the employment level is clearly above the maximum sustainable level. The unemployment is expected to stay low and wage inflation should be accelerating.
  • Soaring Inflation: RBNZ highlighted global development as a key factor in soaring inflation, especially on import energy prices. They also forecast weaker economics growth in light of such.
  • Upward Revision in OCR Path: The OCR projection is revised significantly higher. The official cash rate is now at 4.57% in March 2023 versus previously at 4.03% and at 5.5% in December 2023 versus previously at 4.1%. And it is only expected to rotate lower by 2025 to low 4% by end of it.

OCR Projection Changes and Hikes 

Figure 1: November RBNZ OCR Projection

The OCR projections are marginally unchanged for 2022. However, the rate changes in 2023 has been significantly revised higher. The terminal rate is now circa 5.5%, up from 4.1% in the August OCR projection. The RBNZ is signalling they would aggressively hike in Q1 2023 to demonstrate their committment in tackling inflation. While in most DMs it maybe a policy mistake, the strong domestic demand in New Zealand could potentially give NZ economy some buffer.

The strong domestic demand is further supported by accelerating wage attributed from historically tight labor market. The labor market remains in historical level and is expected to stay low for the coming quarters. Wage inflation is forecasted to accelerated in the coming quarter. It may start to squeeze NZ business in Q1 2023 when the financial conditions are tight and labor cost high. RBNZ may want to cut rate earlier than expected if global developments allow inflation to come down.


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Analyst Declaration
I, Cephas Kin Long Yung, the lead analyst declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.