RBNZ: Upbeat tweaks - ANZ
Analysts at ANZ explain that while cautious and watchful, the RBNZ was a little more upbeat and changes in tone were of the ‘tweak’ variety, rather than anything major.
“Fiscal policy will take on heightened importance. It will boost growth and inflation and influence monetary policy settings. With fiscal policy settings still uncertain, it’s a moving feast.”
“We are less upbeat than the RBNZ on the growth outlook, but do believe the inflation dial is pointing upwards to a greater degree. Cost push pressures are set to build. The demand side of the equation will temper some of that pressure, but not all.”
“That still leaves us biased towards OCR hikes in time. We favour the end of 2018 for the first move.”
“In the final scheduled OCR decision this year, the RBNZ maintained the OCR at 1.75%, as expected. That was never really up for debate. Instead, the question was whether or not the RBNZ felt that events since the September OCR Review warranted a shift in its neutral stance. We didn’t think so, on balance, but it appears the RBNZ felt that enough has occurred to justify some tweaks. The broad spirit of its assessment is the same, and it reinforces that “numerous uncertainties remain”, but it is a little more upbeat than previous.”
“The changes made to the Bank’s policy assessment reflect developments since September:
- The RBNZ has acknowledged the benefit of the lower NZD, which, they note, “if sustained, will increase tradables inflation and promote more balanced growth.” It is clearly happy with the lower level and assumes within its projections that it is maintained.
- The RBNZ has become more upbeat on the growth outlook. It believes “GDP growth is projected to strengthen”, led by fiscal policy, terms of trade and accommodative monetary policy. That offsets any negative implications of the soft housing market.
- Preliminary estimates of the impact of fiscal policy have been incorporated. While the Bank reinforces that the impact of policies is “very uncertain”, it’s clear that fiscal policy will be a lot more expansionary relative to what was flagged in the 2017 Budget. And hikes in the minimum wage will lift wage inflation.
- The RBNZ has dropped the reference to risks of a resurgence in house prices. In fact, it seems more confident that “low house price inflation is expected to continue, reinforced by “new government policies”. We concur.
- The Bank is still cautious on the inflation outlook. While acknowledging the higher starting point, it reiterates that “underlying inflation remains subdued.”