The RBNZ took a decidedly hawkish tilt this week as the central bank raises its official cash rates. The terminal rate has now been increased to 4.1% in December 2023 and that is up from 3.95% projected at the prior meeting. The December 2022 projection is also up to 3.69% from the prior reading of 3.41%. So, with the RBNZ hiking by 50bps this week to 3% the RBNZ is pressing on to tackle high inflation.

What about growth?

With the global macroeconomic environment slowing down Governor Orr recognised that there could be below potential growth in New Zealand due to subdued consumer spending. The RBNZ recognised that house prices have dropped from recent high levels and he expected that to continue over the coming year.

And inflation?

At the last print in July headline inflation for New Zealand was at 7.3%. The RBNZ recognised that domestic inflationary pressures had increased since May to further bring forward the timing of OCR increases. The RBNZ reaffirmed its commitment to bring consumer inflation back down to the 1-3% range. Monetary conditions need to continue to tighten and the RBNZ agreed that maintaining the current pace of tightening remains the best means.

The takeaway

This was a hawkish meeting. The RBNZ increased its rate projections for the future expecting them to peak at 4.1%. It kept Its commitment to hiking rates in order to contain consumer inflation and this should keep the NZD being bought on dips. The best opportunity would come from any signs that the RBA is turning more dovish. In this instance, a potential AUDNZD short trade can open up. However, it would need a fresh catalyst to justify entering a medium-term AUDNZD short.