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RBNZ needs to adopt a formal tightening bias - BNZ

Stephen Toplis, Head of Research at BNZ suggests that it is their strong view that the RBNZ needs to adopt a formal tightening bias when it releases its November Monetary Policy Statement this Thursday.

Key Quotes

“It should probably back this up by moving its first published tightening forward from December 2019 to earlier in the year. But while we would strongly recommend this course of action we would not be especially critical of the Bank if it, instead, hid behind the wall of confusion that currently surrounds it for a while longer.”

“To us the confusion lies with the detail of upcoming policy changes that the new government will implement. We all know the broad thrust of the changes but, at this stage, need a bit more detail on timing and specifics before including such change into our models. Moreover, incorporating change can take a fair few person-hours of analysis and the folk at the RBNZ really haven’t had that much time available to them.”

“While the lack of detail may add to forecast confusion, the Bank does know the broad thrust of policy and will be keen to take a stab at its implications as soon as possible so don’t be surprised if some effort is made to either explicitly include some policy changes or, at the least, talk of the risks of such to the Bank’s central forecasts.”

“We do not buy, however, the argument that the RBNZ would sit on its hands because it doesn’t yet know the exact detail of the future Policy Targets Agreement or, indeed the Reserve Bank Act. Sure, there is some uncertainty about the detail but, equally, there is a great deal of certainty too.”

“While we have significant doubt over what the RBNZ will do with its monetary policy guidance this week, we have little doubt it will revise its CPI inflation forecasts higher.”

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