Halister News

(Bloomberg) -- While New Zealand’s stronger-than-expected 3Q CPI may have taken some pressure off the RBNZ, it is unlikely to spur markets to bring forward their pricing for a rate hike from late 2018, analysts say.

• Pricing for an OCR hike remains fully priced for a 25bp hike by November next year
• Consumer prices rise 0.5% q/q vs est. 0.4% and 0% prev
  • CPI y/y accelerates to 1.9% in 3Q from 1.7% in 2Q and est. 1.8% versus RBNZ’s 1.6% forecast
• NZD/USD up 0.3% to 0.7192 from 0.7181 before release and reached as high as 0.7203 after data
  • N.Z. 2-year interest rate swap climbs 1bp to 2.21%

KEY VIEWS

• Capital Economics Sydney, (Paul Dales, chief economist)
  • At the margin it indicates rates may rise a little bit earlier than the RBNZ’s current suggestion of sometime late in 2019 which fits with house view
  • More encouraging were signs underlying price pressures strengthened a bit
  • However, with signs GDP growth may be close to its peak, core inflation is unlikely to rise to the midpoint of the 1-3% target for a couple of years yet
• CBA Sydney (Richard Grace, chief currency strategist)
  • Numbers don’t change pressure on RBNZ to leave interest rates where they are. RBNZ still forecasting a period of lower inflation as base effects work themselves through, before overall inflation lifts in late 2018
  • Worth noting he very currency-affected tradeables inflation, which showed a quarterly increase of 0.2% y/y
• ASB Auckland (Nick Tuffley, chief economist)
  • RBNZ will be relieved to see inflation lift over the quarter but thinks it will continue to exercise caution given the recent weak out-turns in GDP growth
  • The central bank is aware of questions that remain around the composition of the next N.Z. government and will most likely be happy to leave the OCR on hold for a while longer yet
  • Previous falls in the NZD/USD meant the currency was less of a drag on inflation over the quarter than it has been previously
  • However, with forecasts of a higher NZD/USD, the risk is that these price increases are reasonably short-lived
• Kiwibank Wellington (Zoe Wallis, chief economist)
  • In isolation, data doesn’t threaten the RBNZ’s outlook that the OCR will remain on hold until at least mid-2019. However, expect inflation to continue to print above the RBNZ’s August MPS inflation forecasts for the next few quarters
  • On an annual basis, non-tradables inflation is now running at 2.6% y/y - the fastest rate since the June 2014 quarter. This should be encouraging for RBNZ as domestic inflation is their dominant focus
  • Expect RBNZ revise down its NZ TWI outlook in its November MPS and to also revise up its inflation forecasts somewhat

To contact the reporter on this story: Michael G. Wilson in Sydney at mwilson176@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Patricia Lui