RBNZ: Still not convinced about reflation – HSBC

The analysis team at HSBC explains that the RBNZ left its cash rate on hold at 1.75% as expected, and signalled it is essentially looking through all of the 0.7ppt upside surprise in the Q1 CPI inflation print, which was largely driven by temporary factors.

Key Quotes

“The central bank's projected cash rate track was unchanged from February, showing no rate increases until late 2019. It seems that the RBNZ, haunted by years of persistently undershooting its inflation target, will take some convincing that underlying price pressures have lifted sufficiently to warrant a higher cash rate.”

“Although we agree that headline inflation is likely to fall back a little over coming quarters, with underlying inflation expected to trend higher we think the RBNZ may have to consider lifting its cash rate sooner than they currently think. We see the RBNZ on hold this year and lifting its cash rate in Q1 2018.”