RBNZ Review: Keep Rates Restrictive

RBNZ Kept Rates Unchanged

There is no key revision in the April meeting. Some key takeaways:

• CPI Will Spike in Q1: "The Committee noted that recent monthly Selected Price Indices (SPI) imply some upside risk to the March 2024 quarter Consumers Price Index (CPI)." RBNZ is being per-emptive here to tell the market CPI will spike in Q1 from preliminary data but only due to volatile factors.
• Signal Restrictive Rates Stays: "The Committee agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual consumer price inflation returns to the 1 to 3 percent target range." The forward guidance from RBNZ suggested that the need for OCR to remain at current level at least for the calendar year, signalling the one rate cut that was presented in the February OCR forecast may not happen .

The key to the April meeting from the RBNZ is that while they do not see a significant revision towards medium term CPI and OCR, they are forecasting the Q1 CPI to spike due to transitory factors. This statement could be read as a pre-emptive measure to deal with market participant's reaction towards higher CPI. In the February OCR forecast, it is suggested they maybe a cut by the end of 2024 and the April statement is suggesting the cut may not materialize if inflation is not returning along forecast.

However, we still believe there will unlikely be more upward revision in the coming meeting as the RBNZ has made it clear the higher Q1 headline inflation is transitory and current restrictive rates are sufficient to see CPI returning to target range.