Source: Radio New Zealand
File photo. RNZ
- RBNZ governor says shes committed and confident get inflation back to target
- A stronger economy will add further price pressures
- Experts bet on one, possibly two cash rate increses by year’s end
The odds of the Reserve Bank (RBNZ) raising its benchmark interest rate by the end of the year have narrowed after the latest inflation numbers.
Stats NZ data showed a 0.6 percent rise in consumer prices in the three months ended December, pushing the annual rate to an 18-month high of 3.1 percent, just above the RBNZ’s target band.
The RBNZ has been betting on the slack in the economy caused by recession and weak activity to put downward pressure on inflation, with domestic price pressures of wages, rents, rates, insurance, and electricity expected to ease gradually through the year.
RBNZ governor Anna Breman reaffirmed her commitment and confidence in getting inflation back into the target band.
“We still have favourable conditions in terms of reaching 2 percent because we have spare capacity and wage growth is still subdued, and our job is to do a balancing act going forward to ensure that we reach that,” Breman said in a pre-arranged interview with the Reuters news agency.
Her comments about a current data release were highly unusual, although they were similar to those made before the end of last year. She made no mention of any move in the official cash rate.
Next rate move higher
Economists interpreted the latest data as a sure sign that the next move in the OCR was higher, the only issue being when.
The RBNZ’s own calculation of core inflation edged higher to 2.8 percent, which ASB senior economist Mark Smith said showed the fall in domestic inflation has stalled.
“If anything, underlying pricing pressures look to be picking up.”
“There is the risk that annual inflation over 2026 will not cool to the circa 2 percent RBNZ expectation. Today’s CPI data and the RBNZ estimates for core inflation supports this view,” Smith said.
He said ASB was now picking a 25 basis point OCR rise to 2.5 percent in December, and another couple of hikes in the first half of 2027 to 3 percent.
“Rather than tapping on the monetary policy brakes, the moves should be interpreted as the RBNZ easing off on the accelerator,” Smith said.
ANZ senior economist Miles Workman agreed the next OCR move was higher and most likely in December.
He said the RBNZ had to balance between wanting to get inflation lower and not squashing the signs of economic recovery that have been showing through.
“The RBNZ will be aware that if it comes out too hawkish in February and thereby tightens monetary conditions before current green shoots have a chance to get established, those shoots could easily wither.”
In her interview, Breman confirmed the mixed outlook with some “weak signals” such as the fall in December retail sales and lack of strong recovery in the labour market, but a pick up in growth.
“We will get some data on the labour market coming out now in early February, so that will also be important.”
“We have to take all of this information into account when we go into the next meeting.”
The RBNZ makes its next monetary statement on 18 February.
Financial markets are pricing in the first increase in the OCR by October, and a second by year’s end.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
