BNZ economists remain the most hawkish, picking a rate rise at the September review (although this is a position they held before the Iran conflict).<\/p>\n
ANZ and ASB economists still see the RBNZ holding on until December.<\/p>\n
Westpac forecasts one hike \u201cby the end of the year\u201d.<\/p>\n
The key takeaway from RBNZ Governor Anna Breman\u2019s speech on March 24 was that the RBNZ was likely to take a cautious approach in responding to Middle East ructions, said ASB senior economist Jane Turner.<\/p>\n
\u201cThe global economy has been upended by war in the Middle East, which has seen fuel prices rocket and transport and supply chains upended,\u201d Turner said.<\/p>\n
\u201cThe New Zealand economy has been significantly impacted, and uncertainty is elevated.\u201d<\/p>\n
The Governor\u2019s speech laid out the state of play very clearly, said ANZ chief economist Sharon Zollner.<\/p>\n
\u201cOil shocks are difficult for monetary policy to deal with,\u201d she said.<\/p>\n
\u201cTheir impacts are clearly negative \u2013 weaker growth and higher inflation \u2013 but how monetary policy should respond is ambiguous, because the impact on medium-term inflation is ambiguous.\u201d<\/p>\n
The inflation shock could broaden and become persistent, in which case more\/sooner OCR hikes would be needed, Zollner said.<\/p>\n
But there was also a scenario where the confidence hit and blow to discretionary spending were so large that OCR cuts were appropriate.<\/p>\n
\u201cFrom a \u2018first do no harm\u2019 perspective, wait and see is the sensible approach until the picture becomes clearer,\u201d Zollner said.<\/p>\n
Breman had stressed that the RBNZ was focused on medium-term inflation, said BNZ head of research Stephen Toplis.<\/p>\n
\u201c[The RBNZ] accepts there will be a near-term spike in prices [how could it not?!] but will only raise [or lower] rates based on how permanent that inflation shock becomes. And it will take time to establish a strong view on this, perhaps many months.\u201d<\/p>\n
In an unconventional move related to Iran war uncertainty, the RBNZ will hold a post-release press conference tomorrow, despite this being just a Monetary Policy Review (as opposed to a full Monetary Policy Statement).<\/p>\n
Westpac chief economist Kelly Eckhold said he didn\u2019t expect the RBNZ to provide a full update of its economic projections, despite plans for a special press conference.<\/p>\n
That would still likely come as usual when it releases the next Monetary Policy Statement in May, he said.<\/p>\n
\u201cBut we don\u2019t rule out the possibility that the RBNZ could provide some preliminary quantification of how the conflict has impacted the near-term outlook for inflation and GDP growth that was presented in the February MPS [such as where inflation may peak and how much growth might be impacted this year].<\/p>\n
\u201cSuch estimates could be refined in May based on developments in the Middle East and with the benefit of early economic data and further anecdotes quantifying the impact on New Zealand consumer and business behaviour.\u201d<\/p>\n
The bank would aim to balance a desire to avoid a further tightening of financial conditions with the desire to not sound complacent about the medium-term inflation risks that come with an energy price shock, Eckhold said.<\/p>\n
Current levels of geopolitical uncertainty meant the RBNZ needed to keep all options open, he said.<\/p>\n
\u201cWe can\u2019t assume inflation will automatically revert to more normal levels, but we also can\u2019t assume it won\u2019t,\u201d he said.<\/p>\n
Wholesale interest rates had already risen substantially since the onset of the conflict, pushing up local mortgage rates.<\/p>\n
The RBNZ had to be alert to the possibility that financial stability issues globally could see financial conditions tighten further, Eckhold said.<\/p>\n
\u201cThat\u2019s another reason for not putting maximum weight on forecasts that suggest risks of inflation remaining elevated for a long time.<\/p>\n
\u201cThe market might do some of the job for us. And there might be bigger fish to fry.\u201d<\/p>\n
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.<\/p>\n