RBNZ’s Breman flags possible year-end hike, but says policy stays accommodative.

In a carefully balanced message, Reserve Bank of New Zealand (RBNZ) Governor Anna Breman recently reiterated the central bank’s commitment to an “accommodative for some time” policy stance, while subtly acknowledging the possibility of a rate hike by year-end. This nuance signals a potential shift in the RBNZ’s outlook, but with a strong emphasis that any move remains conditional on significant economic improvement and clear inflation pressure.

Patience is a Virtue, But Eyes are on the Horizon

Following the decision to hold the Official Cash Rate (OCR) at 2.25%, Governor Breman underscored that the projected OCR track should be viewed as conditional, not a pre-commitment. The RBNZ isn’t rushing into anything; settings are expected to remain supportive “for some time” and any normalisation will be gradual. This aligns with the Monetary Policy Committee’s overarching strategy: policy will only tighten as the recovery strengthens and inflation confidently moves towards the 2% midpoint.

Breman did confirm the “possibility” of a rate hike before the end of the year, a detail that aligns with the Bank’s updated projections. However, she quickly pushed back against any notion of an aggressive tightening cycle. The RBNZ is resolute: they are “not planning to hike until we see a stronger economy” and “more inflationary pressure.” This message reinforces that, for the near-term, patience remains key.

A Conditional Path: What’s Not Fully Priced In?

Interestingly, Breman highlighted that a fourth-quarter rate hike isn’t fully priced into the Bank’s current projected OCR path. This means that while the possibility exists, it’s not an assumed or mechanical step-up. It reinforces the RBNZ’s commitment to a gradual withdrawal of accommodation, should conditions warrant it.

Housing Market Stability

On the housing front, a topic always of keen interest, Governor Breman stated the RBNZ does not anticipate a rapid increase in house prices. This perspective supports the broader assessment that households are still exercising caution and that the economic recovery is in its early stages – factors that naturally support a measured approach to monetary policy normalisation.

Key Takeaway for Investors

For investors, the RBNZ’s latest communication offers continuity with a subtle but important shift. While the conversation around timing for a potential rate hike is indeed inching forward, the central bank is setting a high bar for action. Should a hiking phase commence, the signals suggest it will be a slow and deliberate process. The RBNZ remains largely dovish, prioritizing strong, sustainable growth and inflation over premature tightening.

Source: Original Article