Essentially, it sees the RBNZ becoming too uncomfortable with an OCR in stimulatory territory as inflation inevitably rises.
In a research note, the bank says the risks of going too late outweigh the risks of hiking too soon as long as the OCR is not considered contractionary (i.e. not over 3%, the midpoint of the RBNZ’s range of estimates of the neutral rate).
However, even with the OCR still “low” the ANZ says is no longer forecasting the OCR will need to increase to 3.5%. It is predicting it will flat-line it at 3% as the negative income and confidence shock (including the hikes) take the heat out of the medium-term inflation.
“It’s possible the subsequent OCR move could be a cut, or that the OCR doesn’t even make it as far as 3%,” the note says.
The RBNZ committee will not want to repeat the mistake of the Covid era, when policy was kept too loose for too long, the bank says.
While the bank’s new track is slightly more front-loaded than current market pricing, it says it can’t stress enough the uncertainty of the outlook.
“A July kick-off for hikes is not a high-conviction view; it is just what we currently see as the single likeliest timing as we stare into the murk. Take everyone’s forecast with a generous pinch of salt – including both ours and the Reserve Bank’s. That’s just the world we find ourselves in.”
The bank says when mulling over when the first hike is most likely to come, it’s important to recall that before the Middle East conflict began, it had become clear that the OCR had hit bottom and would very likely be lifted sometime this year.
The baseline was not an unchanged OCR in perpetuity. The OCR at 2.25% is below the midpoint of the RBNZ’s range of estimatesof neutral (3%). This point was underlined in last week’s Monetary Policy Review.
So, the OCR is almost certainly going higher (barring something like a global markets meltdown – not a wildly implausible scenario); the question is just whether the timing should be brought forward. That is a lower bar for hikes than that facing central banks that might have been mulling OCR cuts before this happened, the note says.
Thinking about the immediate future, a hike as soon as May seems unlikely at this stage, on the basis that last week’s review stopped well short of setting up an imminent move, but by July, the RBNZ will have Q1 CPI (which largely pre-dates the fuel shock but still provides an updated starting point), and more monthly reads on inflation and wage indicators.
Longer for first OCR hike to kick in
Meanwhile ASB senior economist Kim Mundy says the bank now expects the RBNZ will start raising the OCR in September rather than the previously predicted December to endpoint of 3.25% by mid-2027.
“While the economic outlook remains highly uncertain, it seems clear the risk of a persistent overshoot of the inflation target will likely see the RBNZ normalise monetary policy settings earlier rather than later.”
As a result, the ASB has revised its OCR outlook and now expects a timelier pace of monetary policy normalisation, with 0.25% hikes in September and December.
Mundy says this doesn’t substantially change the long-term outlook for mortgage interest rates. “As we’ve been saying for some time we are past the trough in rates for this cycle.”
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