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11 Mar 2014
Flash: RBNZ to hike rates to 5% by end of 2015 - BNZ
FXStreet (Bali) - Bank of New Zealand raised their peak RBNZ rate forecast to 5.0% from 4.5% by the end of 2015.
Key Quotes
"The RBNZ is set to lead the global process of ‘normalising’ interest rates, with a 25bps rate hike on Thursday. We have long suggested the debate will then rapidly move to the peak in the Official Cash Rate (OCR) i.e. when and at
what level? In this regard, the Bank’s published 90-day bank bill track will be of great interest this week. Recall, the last MPS implied the OCR would be at 4.50% at the end of the forecast period (March 2016), but still on an upward trajectory."
"Late last week we upgraded our forecast peak in the OCR for late 2015, to 5.00%. This formalises the upside risk to our previous forecast of 4.50% that we had highlighted for some time. The forecast peak OCR is now meaningfully
above ‘neutral’ (circa 4.25%). A move towards ‘tight’ monetary policy at the peak of the cycle is consistent with history. The rationale for the move were revisions to our GDP and CPI forecasts (Inflation to Breach RBNZ Band,
7 March 2014). We now see CPI breaching the top of the RBNZ’s 1-3% target band by early 2016, necessitating a more assertive policy response."
"Our revised OCR track also provides a trajectory where the risks are now symmetric. Previously we saw mostly upside risk. However, key tenets of our rates view have not changed. Short-end yields are still seen moving notably higher over the coming year. The moves at the long-end of the curve will be less extreme. For longer-dated NZGBs, in particular, we do not anticipate a harsh sell-off. Constrained NZGB issuance should help limit a sharp rise in NZGB yields. However, the change to the OCR trajectory has several
key implications for our broader rates view."
Key Quotes
"The RBNZ is set to lead the global process of ‘normalising’ interest rates, with a 25bps rate hike on Thursday. We have long suggested the debate will then rapidly move to the peak in the Official Cash Rate (OCR) i.e. when and at
what level? In this regard, the Bank’s published 90-day bank bill track will be of great interest this week. Recall, the last MPS implied the OCR would be at 4.50% at the end of the forecast period (March 2016), but still on an upward trajectory."
"Late last week we upgraded our forecast peak in the OCR for late 2015, to 5.00%. This formalises the upside risk to our previous forecast of 4.50% that we had highlighted for some time. The forecast peak OCR is now meaningfully
above ‘neutral’ (circa 4.25%). A move towards ‘tight’ monetary policy at the peak of the cycle is consistent with history. The rationale for the move were revisions to our GDP and CPI forecasts (Inflation to Breach RBNZ Band,
7 March 2014). We now see CPI breaching the top of the RBNZ’s 1-3% target band by early 2016, necessitating a more assertive policy response."
"Our revised OCR track also provides a trajectory where the risks are now symmetric. Previously we saw mostly upside risk. However, key tenets of our rates view have not changed. Short-end yields are still seen moving notably higher over the coming year. The moves at the long-end of the curve will be less extreme. For longer-dated NZGBs, in particular, we do not anticipate a harsh sell-off. Constrained NZGB issuance should help limit a sharp rise in NZGB yields. However, the change to the OCR trajectory has several
key implications for our broader rates view."