The tone of RBNZ Chief economist Conway’s speech was hawkish and seemed to push back on market expectations for any policy easing in the near term.
This morning RBNZ Chief economist Conway gave a speech titled “The importance of quality research and data.” Unusually, the speech included comments on recent data developments – the RBNZ usually refrains from making such comments outside of its regular policy statements (though the notes accompanying the speech noted it did not reflect the views of the Monetary Policy Committee).
The tone of the comments on recent data were hawkish and seemed to push back on market expectations for any policy easing in the near term.
- When discussing the recent downside surprises to the RBNZ’s activity forecasts, he noted much of this was due to methodological changes related to areas like government expenditure and education. In contrast, estimates of private demand and business investment had been revised higher.
- He also went on to reiterate the RBNZ’s earlier comments about how record net migration was adding to demand and inflation.
- Finally, he noted that while inflation has eased and monetary policy was working, domestic inflation remained elevated and there was still a way to go to get inflation back to the target midpoint. That focus on the midpoint is consistent with the recent change to the RBNZ remit, and also reinforces that it won’t be sufficient to just get inflation below the 3% upper bound of the RBNZ’s target range.
Overall, we view today’s comments as being consistent with our forecast that any easing in policy is still some way off. Market pricing for easing in the first half of this year still seems premature.