New Zealand Dollar: RBNZ split keeps December hike in play - UOB

UOB’s Lee Sue Ann notes that the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) at 2.75% in a narrow 4-3 decision, but maintained a clear tightening bias. With inflation still above target and risks skewed to the upside, UOB continues to expect a 25 bps hike to 3.00% at the December Monetary Policy Statement meeting.

RBNZ pause seen as hawkish hold

"The RBNZ's explicit guidance in the accompanying media release that tighter monetary policy is likely to be required leaves the door firmly open for further policy tightening in coming meetings."

"The inflation outlook remains the key driver of policy deliberations. The RBNZ expects headline inflation to rise to 4.4% y/y in the Dec quarter, largely reflecting higher global fuel prices and the depreciation of the NZD since the Sep policy meeting."

"The narrow 4-3 split suggests that the Committee is moving closer to another rate increase and that only modest upside surprises in inflation or domestic pricing behaviour may be needed to shift the balance in favour of further tightening."

"Against this backdrop, we now expect the RBNZ to raise the OCR by a further 25bps to 3.00% at the 9 Dec monetary policy meeting. By then, policymakers will have the benefit of additional data on inflation, labour market conditions and economic activity."