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Summary
- RBNZ widely expected to leave the cash rate on hold and upgrade economic forecasts.
- Economic data has continued to show improvement since the last policy meeting.
- However, RBNZ likely to keep cautious amid downside risks to growth.
The RBNZ has attempted to raise inflation and employment rate since the start of the COVID-19 pandemic by decreasing cash rate, buying primarily NZ Government bonds, and lending retail banks billions through its Funding for Lending programme (FLP).
The RBNZ strives to achieve the maximum employment and inflation in harmony with its 2% objective.
Economic indicators have shown that the economy had been improving. Here’s a look at some of the positive developments.
- Unemployment dropped to 4.7% in the March quarter of 2021, which RBNZ had not expected to reach the level until 2023.
- Headline CPI has soared 1.5% in Q1 of 2021 and prices for commodity exports, mainly dairy, surpassed expectations.
- A surge in the housing market has revitalised the building sector.
- Business confidence showed strong improvement in May as revealed in the preliminary ANZ Business Outlook Survey.
Source: © PixMarket | Megapixl.com
However, inflation is expected to rise well above 2% this year due to base effects as COVID-19-induced lockdowns resulted in lower consumer prices. Further, business costs have been rising amid disturbances in global supply chains.
DO READ: 5 Reasons to Worry About Growing Inflation Anxiety
ALSO READ: New Zealand’s Business Finance Guarantee Scheme nears its close
As the RBNZ is due to release its monetary policy on May 26, expectations rife that the central bank will give indications of eventual tightening of conditions amid rising inflationary pressures and tighter labour market conditions.
Economists’ take on expected OCR
Various economists have revealed their OCR predictions in the upcoming monetary policy statement and OCR announcement.
Consensus expectations are of the RBNZ to leave the cash rate on hold at 0.25% while upgrading its economic forecasts in the impending monetary policy statement on Wednesday.
ALSO READ: Would New Zealand’s Budget Open Doors For More Employment In The Country?
ANZ economists are predicting the current OCR to begin rising in August 2022 with gradual and steady rises, taking the OCR to 1.25% by the end of 2023.
Stephen Toplis, BNZ Head of Research, stated that the central bank must find a solution to avert a market over-reaction while still suggesting that the likelihood of tighter conditions has increased.
BNZ economists expect a less dovish economic statement in the backdrop of recent economic indications. Kiwibank economist also agreed and expected the RBNZ to not cut rates further.
Westpac expects the RBNZ to not raise rates until early 2024, but other unconventional measures, including bond buying are expected to cease before then.
