Cyclone Gabrielle: Kiwibank says Reserve Bank should delay next week’s OCR hike

“The RBNZ should pause its path of rate hikes, as we deal with the devastating impact of Cyclone Gabrielle,” Kiwibank economists said today.

“The RBNZ can come back in April and resume tightening if required,” said Kiwibank chief economist Jarrod Kerr.

Expectations of a 75 basis point rate hike to the official cash rate have dwindled in the past few weeks but the Reserve Bank is still widely expected to lift it by 50 basis points as it looks to get on top of rising inflation.

In fact, even Kiwibank says it still expects to see a 50 or 25 basis point hike next Wednesday.

“The comms effort in explaining such a move in the middle of a crisis would be difficult, to say the least. And it’s not warranted,” he said.

“The need to tighten aggressively from here has evaporated. Inflation is peaking at lower levels. And global inflation pressures are abating.”

Currently, at 7.2 per cent, inflation is below the RBNZ forecast of 7.5 per cent, he noted.

“The balance of risks are tilted to the downside. We think the RBNZ should pause next week.”

“That’s what we think the RBNZ should do,” he said.

“What we expect the RBNZ will do, however, is deliver a 25bp or 50bp hike. We believe a 75bp hike is well and truly off the table.”

Jarrod Kerr, Kiwibank chief economist. Photo / Supplied

The descent back to the RBNZ’s target midpoint of 2 per cent would be slow and frustrated by the rebuild effort, Kerr said.

“We’re seeing a shift away from goods inflation back towards more service inflation. And there will be a further lift in construction-related costs,” he said.

“But general inflation is easing. We expect inflation to be back near the top of RBNZ’s target band of 3 per cent by the end of this year. And we see inflation stabilising near 2 per cent later in 2024.”

Other major bank economists - such as ANZ and Westpac - have retained their forecasts for a 50 basis point increase.

“The economic impact of this year’s flooding and Cyclone Gabrielle is hard to pin down at the moment,” said Westpac acting chief economist Michael Gordon.

“There will be some loss of business activity in the short term, followed by a boost from clean-up work and rebuilding – though with the building industry already running at full capacity, that may mean that some existing plans are delayed or even scrapped instead.”

“What seems more certain is that it will add further to inflation, at least in the short term.”