RBNZ may well be noticeably more hawkish tomorrow - NAB

Analysts at the National Australia Bank (NAB) offer a brief preview of the Reserve Bank of New Zealand (RBNZ) October OCR decision that will be announced later on Wednesday.

Key Quotes:

“The chance of the RBNZ changing its cash rate at this Thursday's (9:00am) Monetary Policy Statement is as close to zero as you can get. But there will be heaps of interest in the Bank's commentary and forecasts, especially around its interest rate track.

The Reserve Bank will need to take account of a number of inflation "positive" developments since its August MPS, including a higher than expected starting point for CPI inflation, a much lower than anticipated NZD, a stronger than forecast labour market and prospect of higher minimum wages ahead, and improvement in the global economic backdrop.

We also believe the new government's policies infer net upward pressure on inflation, which the RBNZ will have to make judgments on in this week's MPS as well.

On the negative side, business confidence has fallen and the housing market looks a touch softer than the Bank had forecast.

On balance, then, it is almost certain the RBNZ will revise up its inflation track. What is less certain is what it will do with its interest rate track (which, in August's MPS, was flat out to late 2019 before edging higher) as this will depend on the Bank's judgment as to the permanence of the above net inflationary pressures.

All things considered, we believe there is very little chance that the Bank will be more dovish than it was in August and it may well be noticeably more hawkish.”