NZ Economy Beats Forecasts, But Inflation and OCR Expectations Diverge
New Zealand's economy showed unexpected resilience in the June quarter, beating the Reserve Bank's flat forecast and lifting annual growth to 2.6%. The five major bank economics teams praised the result as stronger than expected, given the oil price shock from the Middle East.
The stronger starting point is now colliding with a less comfortable inflation picture. BNZ expects annual CPI to ease to 3.8% in the September quarter before punching back up to 4.2% by December, an upward revision on its prior forecast. The bank has reinserted a 25-basis-point October OCR hike into its call after removing it just weeks earlier.
Rising oil prices and a weaker NZD are causing concern: Kiwibank's economics team warned 'now is not the time to be dousing it with water' on the recovery, even as they argued an October hike would be premature. The Reserve Bank's Monetary Policy Statement had signalled a December hike as more likely.
The bank forecasts diverge on how high the OCR will go. ASB expects hikes at both the October and December reviews, taking the OCR to 3.25% by year-end. Westpac expects the Reserve Bank to pause in October before hiking in December, reaching 3%. ANZ backs an October move too, but argues the OCR will peak at 3.00%, calling market pricing nearer 4% 'overdone'. BNZ is the most hawkish of the group, forecasting 25-point increases at every meeting from October until the OCR reaches 3.75%.