RBNZ probably will hold to midyear tightening

RBNZ probably will hold to hinted midyear tightening

Click here for the full Note and disclosures.

• RBNZ Governor Bollard wants assurance that the economy is out of most fragile recovery phase

• We now expect the first OCR hike in July, but anticipate a 50bp increase

• Prudential regulation and fiscal tightening will do some of the heavy lifting for RBNZ

In a change of forecast, we now expect that the RBNZ will kick off the next tightening cycle in July with a 50bp hike Previously, we had expected a 25bp move in April, arguing that the deteriorating medium-term inflation outlook would prompt the RBNZ to tighten policy before official guidance suggested. The RBNZ said in December that, providing the economy continues to recover in line with the Bank’s forecasts, “conditions may support beginning to remove monetary stimulus around the middle of 2010.”

Given the persistent stream of weak data, however, and Bollard’s desire for hard economy evidence that the recovery is sustainable, on top of the soon-to-be-effective bank liquidity changes and the Budget in May, the RBNZ likely will remain sidelined until July. By delaying the first rate hike, however, the RBNZ probably will have to move more aggressively; in addition to the July hike we look for another 50bp increase in September, after which the pace of tightening will slow.

ENDS

© Scoop Media