RBNZ: Monetary Policy Preview
2023-01-27
■ Although CPI remains high, rate hikes will be narrowed amid recession fears in New Zealand
■ Employment statistics for the October-December quarter and the latest MPS released in February will help shape monetary policy beyond April.
The increase rate of the New Zealand (NZ) consumer price index (CPI) in the October-December quarter of last year was 1.4% from the previous quarter, a slowdown from the previous quarter (2.2%) and 7.2% from the previous quarter %, compared with the previous year, staying at the highest level in about 30 years. The CPI continued to exceed the central bank's target (1-3%) due to rising housing construction, utility bills and food prices.
The Reserve Bank of New Zealand (RBNZ) stated in its Monetary Policy Report (MPS) released in November last year that the CPI peaked at 7.5% in the October-December and January-March quarters of last year, and then showed a downward trend. The policy rate is expected to increase to 5.5% in the July-September quarter and remain unchanged until the April-June quarter of 2024. At the monetary policy meeting held on February 22, there is a high probability that the 10th consecutive meeting will decide to raise interest rates, but the rate increase will be lowered to 50bps, and the policy rate is likely to increase from 4.25% to 4.75%.
The Federal Reserve Bank of New Zealand predicts that the real GDP growth rate in the April-June quarter will drop to minus 0.5%, and the negative growth will continue until the January-March quarter of 2024. Against this backdrop, the market expects rate cuts to begin as early as the second half of this year. However, the unemployment rate in the July-September quarter last year was 3.3%, almost unchanged from the lowest level (3.2%) since the start of the previous quarter, and the labor force participation rate was 71.7%. Showing the growth rate of wages in the private sector, the cost index increased by 3.8% over the previous year, the highest level since statistics were available. At present, the focus will be on whether the employment data for the October-December quarter of the same year will be released on February 1, and whether the labor market will continue to be tight. In addition, the latest MPS to be released on February 28 will also provide clues to the monetary policy process after April.