RBNZ to give surprisingly early steer on economy

Conway will host a RBNZ webinar on how significant changes to the global economy since the Covid-19 pandemic have created new uncertainties and challenges for monetary policy and the high quality research and data needed to understand these changes.

He will also comment briefly on domestic data developments since the November Monetary Policy Statement.

This will come a month before the next tranche of inflation data to be released on 24 Jan and the next OCR review on 28 Feb – the first for the year – after December’s surprise GPD fall.

The RBNZ had expected the economy to grow in the September quarter but instead it tanked by 0.3% sending a shock through economists’ ranks. The economy appears to be slowing faster than anybody predicted and interest rate markets are pricing in a 100 basis point cut by November.

However, ANZ chief economist Sharon Zollner says recent economic data is a mixed bag for the RBNZ.

“The upswing in activity indicators is strong, reinforcing the messages from our own Business Outlook survey and suggests activity has likely bottomed out.”

She says the decline in direct inflation indicators will be welcome for the RBNZ, but that reflects where the economy has been, not where it’s going, and none are suggesting “job done” in terms of bringing inflation sustainably back into the target band.

“The RBNZ will remain rightly wary of cutting too soon and leaving the inflation-fighting job half done.”

Meanwhile the BNZ says the latest suite of monthly inflation indicators due tomorrow will help it solidify its fourth quarter CPI pick. As things stand, it is forecasting a CPI of 0.5%, producing an annual reading of 4.7%. The RBNZ is picking 0.8% and 5.0% respectively.

BNZ research head Stephen Toplis says at face value, this tends to suggest the RBNZ could become more relaxed about inflation. “In truth it may be quite the opposite. Our estimates are much lower than the RBNZ’s thanks to our belief that tradables inflation surprises substantially to the downside.”

Toplis thinks non-tradables will surprise the RBNZ to the upside.

“This is a problem as the RBNZ seems to be placing a huge weight on the non- tradables component when making its rate call decisions We’re not convinced by this approach but if it is the approach taken then, ironically, the surprisingly weak headline reading we are anticipating will put upward pressure on rates.”