Economic data released since the last meeting have continued to improve. We expect the RBNZ to upgrade economic assessments at the upcoming meeting, acknowledging recent positive developments. Yet, policymakers would continue to attribute the spike in inflation to temporary factors. All monetary policy measures will remain intact.
The job market has continued to improve. The unemployment rate slipped -0.2 ppt to 4.7% in 1Q21, beating consensus of +4.9%. The RBNZ had not anticipated to the rate to reach this level until 2023. The labor cost index gained +1.6% y/y during the period. On inflation, headline CPI climbed +0.1 ppt higher to 1.5% in 1Q21. From a quarter ago, the reading gained +0.3 ppt to 0.8%. Inflation expectations have soared.
Leading indicators have projected strong economic growth in the first half of the year, the BOS showed that business confidence jumped +9 points to +7%, while the own activity outlook rose +10 points to +32.3%. Strong growth was broadly based, with export, investment and employment intentions, capacity utilisation, and profit expectations all up 4 to 10 points.
Balancing the upside and downside risks, we expect the RBNZ would maintain all monetary policy measures unchanged. The OCR should stay unchanged at 0.25%. On asset purchases, the LSAP program will also stay at NZ$100B while the Funding-For-Lending program (FLP) will remain in place.