RBNZ: Five Points to Take from their Last Rate Meeting
First of all, this was a classic ‘buy the rumour, sell the fact response’. The hike was expected, so price rallied sharply higher on the announcement, before selling off. Why? Because the RBNZ would have needed to say something extra in order to sustain the rally. As it was the hike was expected, so the RBNZ has only done what everyone thought they would.
Secondly, the RBNZ were explicit about rising inflation pressures, ‘cost pressures are becoming more persistent’. So, no inflation is transitory or passing talk. This is a shift. It was not that long ago and all central banks were looking through inflation. Now, it will be impossible for them to do that. The Fed, the Bank of England, and now the RBNZ quite explicitly have all made moves towards recognising the inflation shift. Remember that the RBNZ recently witnessed the highest inflation reading in 19 quarters.
Thirdly, vaccination rates are seen as releasing the New Zealand economy: ‘The higher the vaccination rate, the less virus-related disruption there will be to New Zealand’s economic activity over coming years’.
Fourthly, the higher inflation was partly placed at the feet of rising oil prices. Expect oil prices to become a key focus now and watch for oil surging higher in the near term. Also, the RBNZ recognise that this is partly due to ‘transition costs’ due to climate goals. So, watch out for the politicisation of any surges higher in oil.
Finally, the RBNZ wanted to keep a flexible hand regarding the speed of hiking rates for next year. There had been expectations of 4 rate hikes next year. The RBNZ want to keep options open and react as the economy reacts: The Committee noted that further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment’.
Well, there is not a lot to take from this aside from NZD strength on deeper pullbacks. It will be worth keeping an eye on inflation prints, as rising inflation could move the RBNZ’s hand now that recognise that they are somewhat more ‘persistent’. Apart from that, there is not much to glean from the statement. The energy from the NZD has largely dissipated now the expected rate hike has been and gone.