Goldman Sachs forecast no change to RBNZ policy tightening path ahead

Goldman Sachs note following the higher than expected inflation data from New Zealand earlier on Monday.

The data is here ICYMI:

  • New Zealand Q2 CPI 1.7% q/q (expected 1.5%)

Goldman Sachs:

Goldman Sachs assess that the upside surprise to CPI „relative to the RBNZ’s already-elevated forecasts clearly raises the risk that the RBNZ steps up the pace of tightening at its August meeting (we see a 35% chance of a 75bp hike).

But, GS goes no,

  • “However, we note that in its meeting last week the RBNZ had already flagged the 'near-term upside risk’ to inflation, but this was balanced against the ’emerging medium-term downside risks to economic activity’ in driving its decision for a 50bp hike.
  • With the OCR already at a modestly restrictive level of 2.50%, we think the bar for the RBNZ to accelerate the pace of tightening at this point in the cycle is relatively high – and will likely require clearer signs of a breakout in long-term inflation expectations rather than high spot inflation.
  • We maintain our call for a 50bp hike in August and 3.50% OCR by year-end, and will be watching closely at the upcoming data on Q2 labor force and inflation expectations ahead of the August RBNZ meeting.

James Rogers

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