The Reserve Bank of New Zealand yesterday, ICYMI:

ANZ has eyes focused on the inflation data due from NZ next week:

  • The accompanying commentary had similarities to May, but it clearly acknowledged the weaker tone of recent indicator data, with the Record of Meeting revealing the Committee “discussed the risk that this may indicate that tight monetary policy is feeding through to domestic demand more strongly than expected.”
  • We highlighted last week that risks are tilting towards the first cut coming in November rather than February as we are forecasting; today’s Review tilts things a little further that way. But the data will decide: next week’s CPI data was always going to be more important for the OCR outlook than whatever the RBNZ had to say today. A cooperative vibe would certainly smooth the path to a cut this year.

ANZ on the market response:

  • Financial markets reacted swiftly, with the bellwether 2yr swap rate around 18bp lower, and the NZD around half a cent lower, within an hour of the MPR. We think that reaction was understandable given the number of dovish judgements in the press release and summary record of meeting, which read like a mini-pivot.
  • Although we think it’s a stretch to call this a fullblown pivot given the Committee’s assessment of balanced risks around inflation and their caution around the impact of tax cuts, markets are behaving as though it was just that. And that assessment isn’t likely to change given how downbeat markets are on the economy. Ignoring hawkish messaging and latching onto dovish messaging is where the market mood is, and the trend lower in rates is likely to continue, barring any major upside surprises, which have been absent of late.


The NZ inflation reports is due Wednesday morning, July 17, New Zealand time: 10.45am

This is TUESDAY at 2245 GMT and 1645 US Eastern time.

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