Why the RBNZ could hike

ANZ Research has changed its forecast for New Zealand’s official cash rate (OCR), and now expects two more by April – which would take the OCR to 6 per cent.

In January 2024, ANZ Research said it expected the Reserve Bank of New Zealand (RBNZ) would be a steady sequence of cuts to the OCR starting in August. Now in February, following “a lot of small pieces of data” – “there hasn’t been any one big game changer”, Zollner said – that expectation has shifted.

Speaking on the 5 in 5 with ANZ  podcast, ANZ NZ Chief Economist Sharon Zollner said international markets would be paying close attention to the RBNZ given NZ has proved to be “a bit of a canary in the coal mine for the global picture” in the past.

“NZ and US inflation is pretty highly correlated,” she said. “In fact, New Zealand pricing intentions explained US inflation better than it does our own!

“If the Reserve Bank does follow through and hike in February, despite the fact that the economy is obviously weak… I think that would certainly get some international attention.”

The RBNZ was “relatively early out of the blocks with hiking” in the post-COVID era compared to other markets, Zollner said, and then the first to “up the speed of hikes… and that certainly got a lot of attention”.

“People thought well if they’re going to do it, then maybe the Fed will as well and that turned out to be precisely the case,” she said.

At the RBNZ’s November meeting the central bank said if any data suggested “a delay in getting inflation back down to the midpoint of the target band sustainably, then the OCR would likely need to go higher”, Zollner said. She expects them to stick to that promise.

“You can go back to the 2000[-era] cycle and see when the Reserve Bank said very similar things” before hiking, Zollner said.

“We don’t think the Reserve Bank was bluffing, we think they were calling it like they see it,” she said. “And if that’s the case and they’re actually that close to the line, it’s not going to take much to push them over.”