RBNZ Review: Signals easing soon

RBNZ Kept Rates Unchanged

There is no change to OCR in the July meeting. Some key takeaways:

Change of stance: "Restrictive monetary policy has significantly reduced consumer price inflation, with the Committee expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year." The RBNZ openly stated inflation is approaching target range in their title, which is a turn around from May's statement when they suggest rate would be higher for longer. It seems to suggest the Q2 CPI would likely tread lower.  

Inflation Approaching Target: "Some domestically generated price pressures remain strong. But there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions.". RBNZ should be referring to service inflation that was moderating slower than expected and suggest such moderation will align with inflation forecast.

Forward Guidance Change: The forward guidance is changed to "The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures." from "The Committee agreed that monetary policy needs to remain restrictive to ensure inflation returns to target within a reasonable timeframe." The RBNZ is signalling current inflationary dynamics are following their playbook and they are ready to ease when CPI reaches target range.

The July meeting is a turn around from the May one. In May, RBNZ is suggest higher rates would be here for longer but now they are saying inflation is approaching target range. While they have not release their inflation forecast, the turn around seems to be driven by the moderation in service inflation, which has been a thorn by their side as it remain stubbornly high. We will have to wait for the next meeting in August or Q2 CPI to confirm. We do not see CPI to go below 3% in Q2 and thus we will likely only see a rate cut in Q4 2024.