the Reserve Bank held the Official Cash Rate (OCR) at 2.25%<\/a> and signalled OCR hikes were probably on the horizon. The next OCR review is July 8.<\/p>\nHowever, ANZ’s Galt and chief economist Sharon Zollner, think the picture has now changed somewhat.<\/p>\n
“On balance, having worked so hard to set up a July hike, we still think the Reserve Bank will deliver it, but it is certainly not the (near) slam-dunk it was. We are also still comfortable forecasting a follow-up hike in September, but we would characterise it as more data-dependent than previously,” Galt and Zollner say.<\/p>\n
“The Reserve Bank\u2019s OCR track in the September MPS may well imply a more gradual hiking cycle from there and\/or a lower endpoint than the May track (with the forecast peak perhaps back down to 3% from 3.28%). Certainly the worst-case scenarios for inflation and the OCR are looking less likely, so the need for insurance hikes is less.”<\/p>\n
“And given reduced upside risks stemming from the cost shock, less urgency may mean the Reserve Bank is comfortable with a slower pace of hikes,” they say.<\/p>\n
“But the data will decide, and we are optimistic that this cyclical recovery is going to get back on track. Our OCR forecast might be unchanged, but three hikes because the economy is recovering would be a much more palatable scenario than three hikes because of an unpleasant cost shock that is bad for growth.”<\/p>\n
The September MPS will be released on September 2.<\/p>\n
Following Stats NZ’s GDP release, this remained the same perspective for ANZ with Galt saying the\u00a0GDP data won\u2019t materially shift the Reserve Bank\u2019s thinking.<\/p>\n
\u201cLower oil prices mean that a hike in July is no longer the slam dunk that it was. However, we think there are enough factors at play to tip them over the line to a hike.”<\/p>\n
\u201cMost important of these is the low starting point for the OCR, with today\u2019s data confirming that the recovery was better established than thought prior to the oil shock, suggesting less need for monetary stimulus,” Galt says.<\/p>\n
\u201cIn addition, a hike is still largely expected, oil prices remain unpredictable, some pricing indicators were looking worrisome prior to the shock, and the growth outlook is now improving.\u201d<\/p>\n
‘A rate hike is more likely than not in July’<\/p>\n
Kiwibank\u2019s Turcu says: \u201cWe have some hope that the economy will sputter for a short time, until the end of the year. Tracking sideways, but not tanking. Which was our biggest fear coming into this.\u201d<\/p>\n
\u201cWe expect that if the economy isn\u2019t weighed down by unnecessary rate hikes, we can get back to a recovery in 2027.\u201d\u00a0<\/p>\n
\u201cBut rate hikes are still part of the story as far as the Reserve Bank\u2019s scenarios are concerned from their May MPS. So the war being over does not necessarily move the needle on our call yet, that a rate hike is more likely than not in July,\u201d Turcu says.<\/p>\n
ASB\u2019s Mundy didn\u2019t expect the GDP figures for the March quarter to have a large bearing on the RBNZ’s OCR outlook.<\/p>\n
\u201cThe data confirmed that economic recovery was broadening, helped by past monetary policy easing. Developments this week have served to remind us how quickly things can change.<\/p>\n
\u201cThe US and Iran have agreed to a Memorandum of Understanding, albeit an unsigned one at this stage, and re-opening the Strait of Hormuz is a critical element of the agreement,\u201d Mundy says.<\/p>\n
Mundy says they would argue those recent developments would have a greater weighting on the Reserve Bank\u2019s thinking about the future of OCR moves than the March quarter GDP release.<\/p>\n
\u201cWe still favour a July start to OCR hikes and a 3.25% OCR peak by year end. Risks are skewed towards a later start to Reserve Bank policy normalisation and a more gradual pace of rate hikes beyond that.\u201d<\/p>\n
\u2018Ceasefire and its endurance really matter to us\u2019<\/p>\n
Finance Minister Nicola Willis said the latest GDP data confirmed the economy was off to a great start at the beginning of the year.<\/p>\n
\u201cI expect next time we get a GDP update, it won\u2019t be as sunny as today,\u201d Willis says.<\/p>\n
\u201cBut what I’m also seeing is a real bounce back in confidence, and we are seeing that the lower oil prices are giving New Zealanders more confidence about their own household spending. It’s giving businesses more confidence about what the future looks like.”<\/p>\n
\u201cThe reality for New Zealand is we’re a small trading nation at the bottom of the world. What happens internationally affects us. So, the ceasefire and its endurance really matter to us, but I’m buoyed by the fact that our fundamentals are strong,” she says.<\/p>\n","protected":false},"excerpt":{"rendered":"New Zealand\u2019s economy was doing okay when the Middle East oil shock hit, Kiwibank economist Alexandra Turcu says,…\n","protected":false},"author":2,"featured_media":483929,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[42,43,40,38,41,39],"class_list":["post-483928","post","type-post","status-publish","format-standard","has-post-thumbnail","category-headlines","tag-headlines","tag-news","tag-top-news","tag-top-stories","tag-topnews","tag-topstories"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/483928","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=483928"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/483928\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/483929"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=483928"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=483928"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=483928"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}