RBNZ to hike rates next year – Capital Economics

In its latest update on the Reserve Bank of New Zealand’s (RBNZ) monetary policy, Ben Udy, Australia & New Zealand Economist at Capital Economics, noted, “we now expect the RBNZ to tighten monetary policy in the years ahead as GDP growth, the labor market and inflation will be much stronger than the Bank has anticipated.”

Additional quotes

“We expect asset purchases to be wound down from this year before the Bank hikes rates in 2022. There are several reasons why we no longer expect further monetary stimulus.”

“First, the recovery in output occurred much faster than we had anticipated as GDP returned to pre-virus levels in Q3. Second, most measures of underlying inflation surged in Q4. All of them are now close the RBNZ’s target mid-point. Third, the housing market in New Zealand is running red hot. House prices are up nearly 20% from a year ago and show little sign of coming back down to earth.”

“By the end of 2022 we expect inflation will have been around or above target for nearly two years and that employment should be above its maximum sustainable level. On that basis we expect the Bank to begin hiking rates at the end of 2022.” 

“We’ve pencilled in three rate hikes to 1.0% by the middle of 2023.”