MPS Preview: Will the RBNZ deliver a single or double shot?

Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell

The Reserve Bank is universally expected to lift the official cash rate by at least 25 basis points - to 1 per cent - on Wednesday.

But there's an outside chance of a double, 50-basis-point, hike.

While the odds on a double-hike are long, some economists say it remains a realistic possibility as the central bank looks to get ahead of rapidly rising consumer price inflation.

BNZ head of research Stephen Toplis said his central view was still for a 25bp hike, but a 50bp hike was still "a genuine option" given the Reserve Bank's track record of taking a "least-regrets" approach.

"In our opinion, at this meeting, the Reserve Bank will be torn between a strict least-regrets view of the world and the growing uncertainty that pervades," Toplis said.

"Least regrets would mean not risking the chance that inflation might become more entrenched - driven, in particular, by a classic wage-price spiral."

ANZ chief economist Sharon Zollner also said she would not rule out a 50bp hike.

"It's been a long time between drinks for the RBNZ, with no opportunity to move the official cash rate [OCR] since late November," she said.

"If there hadn't been a hole in their meeting calendar in January, we'd certainly have another hike under the belt by now. So should the RBNZ make up for lost time?"

But ultimately both Zollner and Toplis see the risks of an economic slowdown as the Omicron wave passes through New Zealand as a reason the RBNZ will likely play it safe this time.

There was a less risky alternative available to the bank, Zollner said.

"Beyond moving the OCR itself, the forecast track has a huge impact. A more aggressive OCR forecast delivers more tightening upfront - with less risk of a u-turn in actual policy."

Economists all now agree the Reserve Bank is behind the curve in its mission to get on top of inflation.

"The reality is that inflation pressures have intensified in the three months since the RBNZ raised the OCR to 0.75 per cent," said ASB chief economist Nick Tuffley.

"At that point, the RBNZ was already forecasting the official cash rate would exceed 2.5 per cent."

Wednesday's monetary policy statement would likely see forecasts lifted to an OCR peak of around 3 per cent, roughly in line with interest-rate market pricing, he said.

News that the housing market had cooled in December and January was a positive for the RBNZ but wouldn't halt the cycle of rate rises, said Westpac chief economist Michael Gordon.

"Although we are still in the early stages of the hiking cycle, financial markets have baked in a substantial number of hikes over the next couple of years," he said.

"As a result, the most popular fixed-term mortgage rates have risen sharply from their lows since September. And we're now seeing the results of that: House price growth has slowed rapidly, and even turned negative in December and January."

But that didn't mean the RBNZ's job was done on housing, he said.

"The housing market will only continue to cool off if mortgage rates remain at these levels. That means the RBNZ still has to deliver on the OCR hikes that the market is anticipating."

ANZ chief economist Sharon Zollner. Photo / Captured by Friday

Beyond the OCR, economists and markets will be looking for some guidance on how the RBNZ plans to unwind its quantitative easing.

"We expect the RBNZ to provide details on how it intends to manage down its LSAP bond holdings," ANZ's Zollner said.

"While the RBNZ has not committed to provide that this month, they did say in November that 'details on how bond holdings will be reduced will be provided early next year', and we take that to mean next week."

Running down the LSAP portfolio represented an unwinding of quantitative easing, or QE, and could therefore be thought of as quantitative tightening, or QT, she said.