ANZ Bank says it is expecting a 75 basis point OCR hike by the Reserve Bank of New Zealand next month, a 50 bp increase in April and a 25bp rise in May as part of a year-long recession it is engineering.
The risks around its cash rate call are “clearly on the downside now the November monetary policy statement (MPS) caused such a double take, the bank says.
Not only does the bank need to see whether the impact sticks, but it says the upcoming fourth quarter consumer price index (CPI) data is key. While inflation is the most backward-looking data there is, it is understandably front and centre of the
RBNZ’s thinking at the moment and over the past year. “CPI data has been the key to forecasts of high interest rates need to go,” the bank’s economists say.
Recession talk tempered
While RBNZ predicted the recession it is cooking up for this year to be 12 months or longer, deputy governor Christian Hawkesby says it could well be “short and sharp”. The bank’s forecast is the economy will contract by 1% over the 12 months from April and then flatline for another six months before returning to growth.
“What we know from history, is recessions do tend to be shorter and sharper. They tend to happen over a couple of quarters. So we're well aware that's a possible outcome,” says Hawkesby.
Upward and downward surprises
The ANZ says the risk profile around future monetary policy moves is evolving and the MPS appears to have gotten traction.
In November, RBNZ governor Adrian Orr instructed consumers to “cool their jets”. ANZ card spending data for December suggests they might have listened. Christmas pressy and discretionary spending like hairdressing were relatively weak last month. The bank noted this is nominal spending – the prices of these items will have risen sharply over the past 12 months, implying even weaker sales volumes.
Jobs data
Monthly filled jobs data for November showed ongoing resilience in the Kiwi labour market, says the ANZ. Filled jobs were up 0.2% month-on-month. The data is consistent with the bank’s expectation that employment growth will remain positive over the summer, helping to keep the unemployment rate at - or even slightly below - the existing level of 3.3%.
However, storm clouds are building. The bank’s December Business Outlook showed a sharp deterioration in employment intentions, consistent with its expectation the labour market will start to soften significantly in the second half of this year. And job ads were down 6% month-on-month in December.
The survey shows business confidence plummeting to a record low. A net 70% of businesses responding to the survey say they believe economic conditions will worsen over the next 12 months compared to 57% who were negative last month.
When asked about their individual activity a net 25.6% believe their activity will drop compared to 13.7% in November.
Good news
ANZ noted net migration is lifting sharply, and firms might decide they don’t need to offer such large pay increases to keep staff because it might soon be easier to replace people.
On the global front annual US CPI inflation dropped to 6.5% in December, down from a peak of 9.1% in June. It is also the smallest annual increase since October 2021.
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