Kiwi after the RBNZ

The RBNZ struck a hawkish note in last week’s monetary policy statement as it raised interest rates by 25 bps. Pointing to a ‘continued acceleration’ in construction, ‘high’ house price inflation, ‘buoyant’ consumer and business confidence, business investment and hiring intentions and ‘strong’ net migration, the Bank said that while headline inflation remains moderate, ‘[i]nflationary pressures are expected to increase.’ Our New Zealand chief economist expects a further 50 bps of tightening this year and 75 bps in 2015. (The current forecast total of 125 bps of tightening in 2014 is 50 bps more than we were expecting in January when we entered our long AUD/NZD trade.)