Even if the RBNZ holds the rate at 5.5 per cent, the mood locally and internationally has shifted since the August Monetary Policy Statement.
After hawkish comments from the US Federal Reserve, bond yields have surged and expectations are that interest rates will stay higher for longer.
With international borrowing costs still rising and mortgage rates still ticking up, whether the Reserve Bank will actually need to lift the cash rate again may be a moot point.
“We expect guidance on how the RBNZ has interpreted recent economic developments, especially the interplay between stronger GDP growth earlier in the year, as well as the recent upswing in net migration and the housing market, but weak cyclical demand indicators,” Eckhold said.
ANZ economists Andre Castaing and David Croy don’t expect any move today either.
But they remain committed to ANZ’s long-held call the cash rate will need to rise again in November.
The RBNZ faces a difficult balancing act as it weighs the relative risks of persistent inflation against a harder-than-necessary economic landing.
But since August, more weight had been added to the inflationary side of the scale, they conclude.
“Life is getting no less complicated for the Reserve Bank,” said BNZ head of Research Stephen Toplis, who takes a slightly more downbeat view of the economic outlook.
He said labour market pressures were dissipating at an accelerating rate but despite strong second quarter GDP results, the economy looked unlikely to build any momentum for some time.
This suggested the bank should be adopting a more relaxed stance than is currently the case, he said.
“On the other hand, it appears to us that near-term CPI inflation will surprise to the upside, and significantly so. And the housing market appears to be turning more rapidly than the RBNZ expected. This could conceivably argue for a tighter monetary policy stance,” Toplis says.
“With such competing tensions, and the uncertainties surrounding the upcoming election, we think the bank would be best advised to play a straight bat, acknowledge the risks that pervade but produce a steady-as-you-go conclusion.
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“The real fun will start in November when the bank will know the colour of the newly-elected Government and it will have the ability to do the complete stocktake that a Monetary Policy Statement [as opposed to the ‘basic’ OCR review due this week] encourages.”
ASB senior economist Mark Smith agrees a “wait and see” approach remains prudent. In fact he expects the RBNZ to maintain that position for a very long time.
ASB doesn’t forecast another hike in November at this stage but has shifted its expectations for rate cuts further out.
“The path of least regret for the RBNZ is still to keep tight monetary conditions for too long rather than ease policy prematurely,” he said.
“We have delayed our anticipated start date for OCR cuts from August 2024 to February 2025, with the OCR expected to settle at circa 3 per cent neutral levels by mid-2026.”
There is still the risk the OCR could move higher from here if inflation does not look like it will be coming down fast enough for the RBNZ’s comfort, he says.
But as a countervailing force, ASB makes the case that short-term interest rate risks posed by strong net immigration may have been overstated.
“Net immigration is exceptionally strong, but to date the flow-through to domestic spending and the housing market has not been as strong as historical relationships imply,” Smith said.
“Either the boost from strong net immigration is lower this time around, and the inflation impacts are milder or there are strong offsetting forces at play.
“The RBNZ will tread carefully here,” he said, a sentiment with which few would disagree.
