Divided opinion ahead of this week's monetary policy statement by RBNZ

Almost everyone thinks Reserve Bank monetary bosses will perform another high jump this week.

Monday, April 11th 2022, 9:16AM

by Eric Frykberg

They just don't agree on how high they will go.

Economists are divided as to whether RBNZ officials will play it safe and inch the OCR over the bar, or amaze the crowd with a record-breaking leap.

Westpac economists are playing it safe and placing a bob-each-way with the bookie.

They say the bank will probably push the OCR up 25 basis points, but it is not certain, and a 50 point rise is possible.

They say RBNZ staff will be in two minds.

On the one hand, they are worried about the inflationary monster crashing through their outer defences and threatening to overrun the inner sanctum.

On the other hand, RBNZ actions so far appear to have tamed the housing market at least.

And the whole problem is made far worse by poor intelligence. Due to what Westpac staff call a paucity of economic data, they can't be sure how dangerous the threat really is.

On balance, eenie-meenie, it's a 25 point rise according to Westpac, but the whole business is touch and go.

ANZ economists are more certain.

They see inflation as not so much an attacking monster, but an unrelenting force, grinding everything in its path.

So they forecast a firm 50 point jump by RBNZ staffers as a desperate counter measure, and not just once, but twice.

After that, there will be a series of 25 point rises til the OCR reaches 3.5%, a level it has not been at for seven years.

For ANZ economists, the danger is not just inflation now, but the expectation that it will get worse in future.

And it is not just a domestic danger, it is made worse by high inflation overseas, which dumps its problems on New Zealand shores and then departs.

Faced with this peril, New Zealand has no option but to take stiff monetary medicine, according to ANZ.

There will be side-effects, but ANZ staffers say they have to be faced up to.

“The growth risks of hiking aggressively are clear, but so are the risks of letting inflation spiral,” they wrote.

“And while there are no low risk options any more, acting aggressively now gives the best odds of avoiding even larger economic costs later.”

ASB economists resemble Westpac more than ANZ. They are opting for a 25 point rise but do so by a wafer-thin margin.

“Economists and the market are on the fence regarding a 25 point vs a 50 point rise,” they wrote.

“Since we can't split the difference, we have opted for a 25 point hike, and for the Reserve Bank to deliver an upfront assessment that the tightening cycle is still in its early stages, and that follow-up 50 point hikes are still possible.”

The ASB staffers said the RBNZ needed to move above neutral levels to sustain the monetary tightening that had already been achieved.

Tags: RBNZ