RBNZ commented that the interest rate hike cycle will end
2023-07-14
■ Confidence in the outlook for prices deepens amid RBNZ's unexpectedly rapid recession.
The Reserve Bank of New Zealand (hereinafter referred to as RBNZ) kept the policy rate (OCR) unchanged at 5.50% at its financial policy decision-making meeting on July 12. This is the first time since August 2021 that the policy rate has been left unchanged. RBNZ said at the last policy meeting in May that the final arrival point (terminal exchange rate) of the interest rate hike cycle was expected to be 5.50%, and hinted that it would stop raising interest rates in July. Therefore, this decision is in line with market expectations. In this case, the RBNZ's decision to hold off on rate hikes can be interpreted as it heightened confidence in (1) future price action and (2) because it heightened vigilance against a deteriorating economy.
(1) New consumer price index (CPI) data was not announced after the May policy meeting, and the latest data needs to wait for the CPI for the April-June quarter to be released on July 19. The January-March CPI announced on April 20 was up 6.7% year-on-year, and the growth rate slowed down. The forecast given by RBNZ in February (up 7.3% year-on-year) was significantly lowered. In the statement released after the policy meeting, the previous record that "the pressure on core inflation will continue until capacity constraints are further eased" was deleted, and the outlook for the core inflation rate was clearly expected to decline. Although RBNZ still deviates greatly from the price target retracement level (1-3% year-on-year increase), it maintains the view that growth in the July-September quarter next year will slow down to this retracement level. It can be interpreted as deepening confidence in the slowdown of future price growth.
(2), The real GDP growth rate announced on June 15 from January to March fell by 0.1% compared with the previous period, the definition of economic recession (re) fell into a big one. In May, RBNZ expected the July-September return period to come, but earlier than previously expected. This can also be said to be the impact of the cumulative 5.25% interest rate hike since October 2021. RBNZ said in a statement that "consumer spending growth has slowed and dwelling construction activity has also declined" language maintained from last time. In addition, the manufacturing PMI further dropped to 47.5 in June, while the consumer confidence index and business confidence index also showed cautious conditions while improving. The prospect of a deepening recession is a depressing scenario.
To sum up, it is difficult to predict a period of additional interest rate hikes, and the next focus is expected to be the start time of interest rate cuts. RBNZ predicted in May that interest rate cuts would begin in July-September next year. On the other hand, some people in the market expect interest rate cuts to begin in April-June next year, but it is expected that the policy rate will remain unchanged for at least this year as the majority.