ANZ sees RBNZ hiking by 50 bps in both April and May

[SYDNEY] Economists at ANZ Bank see the Reserve Bank of New Zealand (RBNZ) tightening much more aggressively this year as a spike in world oil prices threatens to destabilise inflation expectations at home.

Sharon Zollner, ANZ's chief economist for New Zealand, is forecasting hikes of 50 basis points at both the April and May policy meetings and sees the official cash rate (OCR) peaking at 3.5 per cent in April 2023, up from 3.0 per cent previously.

Rates are currently at 1.0 per cent having been raised from 0.25 per cent in three moves of 25 basis points. The RBNZ tends to favour quarter-point moves but did say a half-point was possible if inflation looked to be getting out of hand.

Markets are already pricing in a reasonable chance of a half-point move in April, but not for another in May.

"The OCR call change comes primarily on the back of our updated CPI forecasts that now have inflation peaking at a broad-based 7.4 per cent in Q2, rather than the RBNZ's forecast of a 6.6 per cent peak in Q1," said Zollner.

"The RBNZ would prefer to look through oil price shocks, but right now, with inflation expectations so high and rising, they just can't."

The upgrade to inflation stemmed from the recent spike in oil, which briefly topped US$130 a barrel on Monday amid risks the United States and Europe might ban Russian oil.

A host of other commodity prices have also been climbing including dairy, New Zealand's biggest goods export.

Zollner noted aggressive rate hikes would be risky given that business sentiment had fallen sharply in the last couple of months and the housing market was cooling quickly.

ANZ now sees house prices falling 10 per cent this year should the RBNZ hike rates as rapidly as they forecast. REUTERS