New Zealand Dollar: December hike remains on the table after RBNZ split - UOB

The Official Cash Rate (OCR) remained at 2.75% following a narrow 4-3 decision by the Reserve Bank of New Zealand (RBNZ), which retained a clear tightening bias, notes UOB’s Lee Sue Ann. Inflation remains above target, with risks tilted to the upside. UOB therefore still expects the December Monetary Policy Statement meeting to deliver a 25 bps increase to 3.00%.

RBNZ keeps tightening bias despite rate pause

"The RBNZ's explicit guidance in the accompanying media release that tighter monetary policy is likely to be required leaves the door firmly open for further policy tightening in coming meetings."

"The inflation outlook remains the key driver of policy deliberations. The RBNZ expects headline inflation to rise to 4.4% y/y in the Dec quarter, largely reflecting higher global fuel prices and the depreciation of the NZD since the Sep policy meeting."

"The narrow 4-3 split suggests that the Committee is moving closer to another rate increase and that only modest upside surprises in inflation or domestic pricing behaviour may be needed to shift the balance in favour of further tightening."

"Against this backdrop, we now expect the RBNZ to raise the OCR by a further 25bps to 3.00% at the 9 Dec monetary policy meeting. By then, policymakers will have the benefit of additional data on inflation, labour market conditions and economic activity."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)