RBNZ Policy Meeting: Time To Raise OCR?

On Wednesday, the RBNZ will have its regular policy meeting. This is considered an “interim” meeting since it won’t include a Monetary Policy Statement (MPS).

Generally, the Reserve Bank prefers to make policy changes accompanied by a policy statement, followed by a press conference, but neither will happen for this meeting. So, the consensus among analysts is that there won’t be any policy changes.

However, it’s expectations that drive currency impact.

Earlier today, the Shadow Monetary Policy Committee called for a tightening approach at the coming meeting. Of course, they aren’t the ones who make the actual decision, so the market impact isn’t as big.

Nonetheless, it underscores the growing unanimity in the market and among the financial community that inflation is becoming a problem, and that the RBNZ should do something about it.

The signs of what’s to come
Some see the Shadow MPC as the RBNZ’s means for testing the market’s reaction to potential policy changes, doing so by sending up “trial balloons”. Therefore, they could just be looking to pull forward their next rate rise.

This could be significant since the committee saw the rates rising in early 2022 at their last meeting, which the markets broadly interpreted as hawkish.

Despite this, there is increasing talk that the RBNZ might raise rates in November. This would pull forward the current money market timetable, and substantially strengthen the Kiwi.

Hard to agree on what to do
There isn’t a strong consensus on that, but Kiwibank stated that November is too early. And even though the mere mention of a specific date suggests that it may be a real possibility.

New Zealand financial experts are also worried about the rising housing prices. This is because inflation data does not factor in new and used house sales prices.

Also, beyond the official inflation numbers, Kiwi households could struggle even more with their disposable income.

The rate hike isn’t certain
Ordinarily, we would expect that raising the OCR would translate into higher mortgage rates. It would also likely tamp down the housing market a bit.

That said, New Zealand’s relatively strong economic position in the post-recovery world has made it a target of foreign investment, particularly in housing. So, the combination of a higher interest and a stronger currency might slowly get the housing market under control.

This could be one of the reasons that analysts are more “hopeful” of a rate hike.

Last Tuesday there was a shake-up after the Treasury said that they expected a “dramatic” halt in housing price increases. This came after Finance Minister Robertson said that the previous tools that the RBNZ has considered to control housing prices lacked impact.

We can expect the Reserve Bank to consider adding new tools to try to control the housing market. This suggests that they might not be thinking about raising rates as early as some analysts are expecting.

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