The RBNZ's view broadly aligned with most bank economists until last week, when ANZ economists revised their OCR outlook substantially to 4.75 per cent and ASB economists lifted theirs to 4.25 per cent.
These shifts followed data releases reflecting inflation being more stubborn worldwide, and Federal Reserve chairman Jerome Powell talking a big game on quashing inflation at a conference in Jackson Hole.
"Central banks really have to be pretty firm and get everyone believing that they are going to hold rates higher for longer," Gardyne said, pointing to examples in recent months of longer-term interest rates falling, due to markets betting on the central banks loosening monetary conditions in the foreseeable future.
"Central banks are walking a tight rope," Gardyne explained.
"They have to tell everyone they're super serious about this and they're going to keep interest rates high for as long as they need to. But in reality, I think we'll see inflation start to come down at some point next year."
Gardyne acknowledged that yes, we are seeing strong inflation. New Zealand's consumer price index rose by 7.3 per cent between the June 2021 and June 2022 quarters.
However, the important thing for central banks to consider is, where will inflation be in a year? After all, it takes at least a year for OCR changes to take effect, as people come to refix their mortgages for example.
The average rate on the country's stock of mortgage lending was only 3.7 per cent in July, according to RBNZ data. This was well below the average two-year fixed mortgage rate being sold at the time of 5.5 per cent.
Gardyne explained why he saw inflation softening.
"We've already seen energy prices come off quite a bit in recent weeks.
"Food prices have come down from their highs, used car prices, lumber prices, shipping prices – there's actually quite a lot of deflationary pressure in some of those things.
"It's going to take a while to show in the actual numbers, but if you fast forward about six, seven, eight months from now, unless the prices of oil and food go even higher from here, we'll actually see inflation naturally come back down towards 3 or 4 per cent."
Gardyne also noted the RBNZ is operating in a different environment to the Federal Reserve.
The New Zealand economy is particularly sensitive to interest rate changes because households have so much mortgage debt, taken out at shorter terms than people in the United States for example.
"If we keep our interest rates high for as long as the Fed does, I think that would cause some real problems for our economy," he said.
Gardyne recognised high inflation and interest rates are bad for the equity markets he buys and sells shares in for a living.
Hence, share prices could keep falling if ANZ economists are right, and the RBNZ ends up needing to work harder to get on top of inflation.
However, if the "goldilocks" scenario that Gardyne foresees plays out, and the OCR can peak at 4 or 4.25 per cent for a short time before falling, there are bargains to be snatched up now.
"I believe that equity markets have probably got a little bit ahead of themselves in pricing a recession and we could actually see a pretty strong period for equity returns if that was the case," he said.
He saw value in some technology stocks, which fell in value when interest rates started rising as quickly as they rose in value when interest rates were falling.
Gardyne said shares in good companies like Microsoft and Paypal got lumped in with other high-growth stocks in the recent sell-off.
"Whenever you see some real volatility in markets, there are opportunities. When markets are actually really steady, stable and everything's moving together, it's often harder, as a stock picker, to find individual companies to invest in," he said.
Gardyne noted investors had been trading these tech stocks for shares in energy companies.
While he saw inflation abating, he said it was possible that energy prices remained elevated on the back of geopolitical tensions and an under-investment in energy generation in recent years. This would be good for energy stocks.
Taking a high level, "glass half full" view, Gardyne concluded: "There's a lot of recency bias – people looking at the Global Financial Crisis, the Covid sell-off, and the dotcom bubble and thinking, we're due another one of them.
"But the reality is, most of the periods of difficult economic activity we've had, have seen a 25 or 30 per cent fall in equity markets. We're already down 20 per cent this year. There's always an element of a certain amount of pessimism already being factored into pricing."
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