Source: Radio New Zealand
RNZ
- Reserve Bank expected to hold official cash rate unchanged at 2.25 percent
- Middle East conflict clouds decision making for central banks
- Recent speech by Governor Anna Breman likely template for latest decision
- Accept inevitable inflation and growth impacts, but no knee jerk rate reaction
- Markets price in 25 basis point rise September, another by year end
- RBNZ statement due 2pm, 8 April, online news conference at 3pm
Amid a fog of war in the Middle East the Reserve Bank (RBNZ) may have one crystal clear message in its latest monetary review, when in doubt and you cannot see ahead, do nothing.
The head of research at BNZ, Stephen Toplis, said it is a nightmare time for central banks and economic forecasters, facing a significant inflation spike but faced with a lack of information and great uncertainty.
“It’s a case of if you know nothing, do nothing.”
He said Breman’s speech in late March was as clear an indication of what the new statement would be like in tone and content.
“The Governor’s played it with a straight bat, she’s said the right things which are ‘look there’s no knee jerk reaction from us because we need to see how this plays out’.”
“But there’s still a stern warning that if rising inflation now feeds into inflation expectations, and people start raising prices left right and centre, and it looks like inflation will become permanent then she’ll just raise interest rates,” Toplis said.
He said it was likely that the extent of the conflict’s impact on New Zealand’s inflation and growth rates would not become clear much before the middle of the year, with every possibility that March and April would show businesses increasing stocks and buying in materials to get ahead of disruptions.
Reserve Bank Governor Anna Breman. RNZ / Samuel Rillstone
Cold comfort of weak economy
HSBC chief economist for Australia and New Zealand, Paul Bloxham, said paradoxically this country’s weak economy over the past few years offered some insulation against the current shock.
“It may seem like cold comfort that three years of weak growth means New Zealand may be better placed to handle the current shock, but even cold comfort should be some comfort.”
He also expected a cautious approach by the RBNZ, with a decision to hold rates steady as it weighed up whether the energy shock was more of an inflation or growth concern.
HSBC chief economist for Australia and NZ Paul Bloxham. LinkedIn
ASB senior economist Jane Turner said the RBNZ faced an horizon shrouded in uncertainty, with risks skewed to the downside, but could be expected to take a longer term policy view, and that supported no change in rates anytime soon.
Key for future policy would be sentiment surveys and how well anchored inflation expectations were.
“Some ticking up in short-term surveyed inflation expectations is likely, the RBNZ will place more weight on surveys for longer horizons, confident these will remain around 2 percent.”
“We expect the RBNZ to affirm its confidence that inflation will settle within the 1-3 percent target range, with the growing margin of spare economic capacity and subdued economic backdrop to dampen domestically generated inflationary pressures.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
