RBNZ Look ahead: Another hawkish tilt?

On November 1 New Zealand house prices showed the first sign of strain with their first annual fall in more than 11 years. Prices fell 0.6% from the prior year and values fell for a 7th consecutive month. This is due to the affordability challenge for buyers either getting new or applying for extensions to their mortgages. According to Bloomberg, some economists are projecting a 13% fall in house prices this year with further falls in 2023 and a peak to trough slump of 18-20%. The impact of higher interest rates are being felt. 

So, will this slow down the RBNZ?

The last meeting saw an RBNZ resolute on hiking rates. The RBNZ took a definite hawkish stance as reported on here and high inflation was flagged as a concern. Headline inflation remains at 7.2% y/y .

Core inflation continues to rise with June’s print continuing the upward trend

Governor Orr stated on November 02 that the RBNZ are determined to bring inflation down to 2%. So, the RBNZ are faced with inflation that they need to reduce.  

What’s expected from the RBNZ on Wednesday?

The current expectations are all follows. The majority(15/23) of economists surveyed by Reuters expect a 75 bps rate hike to 4.25%. The remaining 8 expect a 50bps rate hike. The Short Term Interest Rate markets expect (as of the end of last week) a near 50/50 split on a 75bps or 50bps rate hike. So, there are options here either way for a surprise. See here the probability options from Financial Source.

However, the best opportunity would likely come from a 50bps hike and more dovish communication that might focus on the slowing housing sector.  So, it would be reasonable to expect that to weaken the NZD out of the meeting.