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May 21 - 02:55 PM

Credit Agricole: RBNZ to Maintain a Neutral Stance at this Week's May Meeting

By eFXdata  —  May 21 - 01:15 PM


Credit Agricole anticipates a stubbornly neutral stance from the Reserve Bank of New Zealand (RBNZ) in its upcoming May meeting, despite market expectations for impending rate cuts.

Key Points:

  • Market Expectations vs. RBNZ Outlook: Markets are pricing nearly two 25bp rate cuts by the end of the year, with the first expected by October. However, RBNZ may disappoint these expectations, potentially boosting the NZD.
  • Economic Backdrop: New Zealand has entered a double-dip recession in H2 2023, and recent indicators suggest another soft growth patch. Employment growth has slowed, and unemployment has risen to a nearly three-year high at 4.3%.
  • Inflation Concerns: Despite a slowdown, headline inflation remains high at 4% YoY, above RBNZ's 1-3% target range. The bank's preferred inflation measure is also elevated at 4.3% YoY.
  • Inflation Expectations: Sectoral factor model inflation expectations have fallen but remain slightly above the mid-point of the target range.


Credit Agricole expects the RBNZ to hold the Official Cash Rate (OCR) at 5.50% and project a cautiously optimistic tone about the effectiveness of current policy settings. Governor Adrian Orr is likely to emphasize the necessity of maintaining the OCR at the current level for a "sustained period" and suggest that rate cuts are not imminent, possibly not starting until H1 2025.

Crédit Agricole Research/Market Commentary


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