RBNZ Review: OCR Revised Higher

RBNZ Kept Rates Unchanged but revise OCR forecast higher

OCR forecast are revised higher. Some key takeaways:

• OCR Forecast Revision: RBNZ now see OCR at 5.63% in March 2024 prior 5.58%, at 5.66% in December 2024 prior 5.5%, at 5.56% in March 2025 prior 5.36%. It is suggesting there is chance there will be one more hike in 2024 and higher interest rate may last longer than expected.
• CPI Forecast Revision: They also see annual CPI 2.5% by December 2024 prior 2.4%
• Reopening the Doors of Tightening: "Interest rates will need to remain at a restricted level for a sustained period of time. However,inflation remains too high, and the committee remains wary of ongoing inflationary pressures. Demand growth has eased, but by less than anticipatedover the first half of 2023 in part due to strong population growth. If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further."

While the upward revision is minimal, not even a full 25bps revision, it signals the market the RBNZ is ready to restart its tightening when it is necessary to tackle inflation. Just looking at the OCR forecast, we could expect 1 more hike in 2024 and such higher rate would last longer. It surprises most market participants as most believe RBNZ was done with tightening and there does not seem to be a major CPI trajectory change.

We believe there will unlikely be more upward revision in the February meeting as the higher Q3 CPI should be limited to the period of time when we see higher energy prices.