BNZ's economists have formally shifted their call for the Reserve Bank's next move to a rate hike in March 2013 from a December 2012 hike in the Official Cash Rate.
After weeks of hinting they may shift their call out, BNZ's economists made the move on Monday, citing a weaker outlook in Europe and China, lower commodity prices and more frustrations with the Christchurch rebuild. However, BNZ's economists economists stopped well short of agreeing with financial market expectations for 44 basis points of cuts in the Official Cash Rate over the next year.
It also stuck to a forecast of a peak in the Official Cash Rate of 4.25%, albeit shifted out to September 2014 from June 2014. That is significantly higher than the forecasts implied by the Reserve Bank.
"While we remain very much in the rate hike camp, we have today formally delayed the start of this process to March, from December – as we have been strongly hinting we would probably do for a while now," BNZ's economists said in this note.
"To be clear, this is not owing to any slam-dunk piece of news (the likes of which we‟ve been waiting, and waiting, for on which to hang a delayed OCR call on). Why have we delayed our OCR rate-hike schedule, then? Well, mainly because of a collection of niggles, and risks, as well as the inexorable passage of time that makes a first rate hike by December now practically too near," they said.
"The niggles include the backwash from the commodity correction; the fiscal consolidation inferred in last week‟s Budget (if surpluses are to be actually restored), a slower tone from Australia and China, risks around a policy induced collapse in Europe, the lack of any smoking guns on domestic inflation, continued frustrations on the rebuilding in Canterbury (not helped by the big quake registered just last Friday) – and other things that only more time will help pass decent judgement on,": they said.
"Our main message remains the same, however. No easing. And more hikes than many expect in due course. We still forecast a 4.25% peak in the OCR – simply shifted to September 2014, from June of that year. In shifting to a March call we still acknowledge that the first move could yet be pushed out even further but, equally, by delaying to March there is now the possibility that we are caught out on the other side too, in the event that the economy gains more momentum, and/or develops more inflation, than currently forecast."
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