The Ready Reckoner assesses how recent data will affect the RBNZ’s OCR forecast.
The Ready Reckoner quantifies the impact that recent data will have on the Reserve Bank’s Official Cash Rate forecast. The Ready Reckoner is meant to be a pure read on the balance of recent data, and is not a prediction of the RBNZ’s actions.
The August MPS projection was adjusted at the last minute to reflect the Covid lockdown that was announced the day before. That change appears to have been largely about timing, with the profile still suggesting OCR hikes in October and November. Further hikes were projected over the next few years, with the OCR rising above 2% by 2024.
The major developments since August have been the much stronger than expected starting point for GDP, against a growing risk of more prolonged Covid restrictions than the RBNZ had initially assumed. On balance we judge these to be a net positive for the Ready Reckoner, though we acknowledge that it’s quite uncertain how the RBNZ will approach the latter of these.
- August MPS implied OCR forecast (Q3 2023): 2.0%
- Net impact of shocks since August: +20bp
- Ready Reckoner estimate of new OCR forecast (Q3 2023): 2.2%
Near-term GDP: +20bp
The RBNZ expected a 0.7% rise in June quarter GDP. The actual result was a 2.8% increase; including revisions to previous quarters, GDP was 1.8% above the RBNZ’s forecast. On its own this would be a significant positive for the Ready Reckoner.
The latest Covid lockdown is hard to interpret from a Ready Reckoner point of view. What actually matters here is the output gap relative to potential. Lockdowns lead to a sharp drop in both actual and potential GDP, and experience has shown that both bounce back quickly once restrictions are lifted.
Nevertheless, it seems likely that this lockdown will halt some of the recent momentum that the economy had been building over the past year. In August the RBNZ had forecast 1.5% growth over the second half of 2021. If they reduced this to zero – i.e. a full rebound from lockdown over the December quarter, but nothing more – that would offset most of the June quarter GDP surprise.
Inflation expectations: +5bp
Year-ahead inflation expectations have risen sharply, to the top of the RBNZ’s 1-3% target range. However, longer-term expectations haven’t been surveyed since August, and market-based measures are little changed.
World economy: -5bp
Market forecasts of world growth for 2021 have been revised down since August.
- Total change: +20bp
