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 .

NZD headline inflation

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

Core NZD inflation

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.

RBNZ rate hike

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. 

NZD index has shown signs of strength since the last hawkish RBNZ meeting