Breman’s comments push back against the dovish reading of Wednesday’s hold and look aimed at steadying the New Zealand dollar, which she has said could add to imported inflation if it stays weak. Pricing of around 77% leaves room for further repricing toward a December hike if incoming data cooperates, which would support the currency and front-end yields. Her emphasis that timing is uncertain keeps the risk of a second hold alive, so the kiwi’s recovery may be gradual rather than sharp. Fuel prices remain the main external swing factor, linking the RBNZ path to oil and the Iran conflict.
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A day after a hold that sank the kiwi, Breman is all but promising December, though she isn’t quite ready to put it in writing.
Summary:
Reserve Bank of New Zealand Governor Anna Breman said on Thursday that the chances of an interest rate hike in December are high, sharpening her guidance a day after the central bank surprised markets by leaving the official cash rate unchanged at 2.75%.
In an interview with the New Zealand Herald, Breman said every member of the monetary policy committee agrees that further increases in the cash rate are likely, though the timing remains uncertain and will depend on the economic outlook and how inflation develops. Asked directly about the odds of a move in December, she said they were high.
The comments go further than the signal the RBNZ gave on Wednesday, when it held rates but said additional hikes were likely. That decision caught markets off guard. Before the announcement, pricing had pointed to a hike as close to a certainty, and the New Zealand dollar fell sharply after the bank held. Markets now price around a 77% chance of a hike in December.
The hold was itself a close call, with the committee split 4-3 and Breman among the majority who argued that two recent rate increases warranted time to assess their effects. At her press conference after the decision, she said tightening could need to extend into restrictive territory and flagged concern that a weaker currency could add to imported inflation at a time when fuel costs have risen further.
Fresh data has added weight to that concern. A business survey released on Thursday showed the share of New Zealand firms planning to raise prices climbed to its highest since May, with cost expectations remaining very high.
Breman also sought to reassure the public, saying that despite an uncertain environment, the RBNZ would remain calm and focused on its mandate of returning inflation to target.
The December decision will come alongside the Monetary Policy Statement, which will include updated forecasts and a new projected path for the cash rate. Until then, inflation indicators, labour market data and the currency will be key in determining whether the high chance of a hike becomes a reality.
This article was written by Eamonn Sheridan at investinglive.com.
Source: Investing Live - Central Bank
