KiwiBank with a good point IMHOP.
- The RBNZ should pause next week, as we deal with the devastating impact of Cyclone Gabrielle. The RBNZ can come back in April and resume tightening if required.
- Talk of a 50bp, or even 75bp, hike should be sidelined. The comms effort in explaining such a move in the middle of a crisis would be difficult to say the least. And it’s not warranted.
- The need to tighten aggressively from here has evaporated. Inflation is peaking at lower levels. And global inflation pressures are abating. Currently at 7.2%, inflation is below the RBNZ forecast of 7.5%. Tthe balance of risks are tilted to the downside. We think the RBNZ should pause next week. Current circumstances warrant caution. But what we think they should do is not what they will likely do. We expect to see a hike, but the discussion should be around 0 or 25bps, not 50 or 75bps.
The Reserve Bank of New Zealand meet on February 22
