- RBNZ is expected to hike the OCR for a second consecutive meeting by 25bps to 0.75%
- OIS fully price in a hike and 19 of 20 analysts surveyed expect a 25bps increase, while the remaining analyst called for a 50bps hike
- Hawkish rhetoric and strong data supports a back-to-back hike, while focus will also turn to the statement and press conference
- RBNZ Rate Decision Scheduled for Wednesday 24th November 2021 at 01:00GMT/20:00EST
OVERVIEW
RBNZ is to conduct its latest policy meeting on Wednesday in which there are expectations for the central bank to hike rates by 25bps to 0.75% with OIS pricing in 100% probability of an increase. Furthermore, a prior newswire survey showed 19 out of 20 analysts that responded are forecasting a 25bps hike, while one analyst is calling for a greater move of a 50bps hike.
HAWKISH COMMENTS AT THE LAST MEETING SUGGEST A BACK-TO-BACK HIKE
This would be the second consecutive hike by the RBNZ after it increased rates for the first time in seven years at the October meeting where the committee noted that a further removal of monetary policy stimulus is expected over time and that it is appropriate to continue reducing the level of monetary policy stimulus with future moves contingent on the medium term outlook for inflation and employment. The central bank also stated that policy stimulus will need to be reduced to maintain price stability and maximum sustainable employment over the medium term, as well as noted that cost pressures are becoming more persistent and capacity pressures are still evident, while it added that demand shortfalls are less of an issue than the economy hitting capacity constraints.
DATA POINTS TO AN OVERHEATING ECONOMY
The hawkish comments are further supported by strong data which continues to point to an overheating economy with CPI Y/Y firmer than expected at 4.9% vs exp. 4.1% (prev. 3.3%) which is substantially above the 1-3% medium term target, while there was also a blockbuster jobs report in Q3 with Employment Change at 2.0% vs exp. 0.4% (Prev. 1.0%) and the Unemployment Rate fell to 3.4% from 4.0% despite a 0.7ppt increase in the Participation Rate. The strong data has spurred banks to adjust their rate hike calls with Bank of New Zealand suggesting the probability of a 50bps rate hike at the upcoming meeting was 50-50. ANZ Bank also brought forward its estimate for the OCR to reach the neutral level of 2.0% by August 2022 vs prior forecast of end-2022 and Westpac now sees the OCR peaking at 3.0% in 2023 vs prev. forecast for the OCR to peak at 2.0%.
ANNOUNCEMENT
The announcement is scheduled for 01:00GMT/20:00EST in which the focus will centre on the actual rate decision although a 25bps hike may not provide much of a sustained lift for the currency considering that markets are fully pricing an increase and with outside calls for a more aggressive hike, while the currency would likely jump if the RBNZ surprises with a 50bps increase. Attention will also be on the statement for clues on the RBNZ’s pace of rate increases and latest forecasts with the prior estimates for the OCR at 0.59% in December 2021, 1.38% in September 2022, 1.62% in December 2022 and 2.14% in September 2024. The meeting will also be followed by a press conference one hour after the release which adds to the further likelihood of policy action.