RBNZ board member Gai says Hormuz shock does not warrant reflexive rate hikes

What the desk is arguing

The RBNZ's current monetary policy stance, as articulated by board member Professor Gai, suggests that the central bank will not reflexively tighten rates due to the Hormuz supply shock. Gai's assertion that the neutral rate has increased but does not necessitate immediate action indicates a measured approach to inflationary pressures stemming from energy supply disruptions.

Supporting this view, Gai noted that pre-emptive hikes require a high degree of synchronization among global economies, a condition he believes is not present at this time. This perspective aligns with the traditional central bank framework, which treats energy price shocks as temporary disturbances rather than triggers for immediate policy shifts.

The alternative read would suggest that the RBNZ should act more aggressively given the inflationary risks posed by the Hormuz situation, a stance that is gaining traction in other jurisdictions, particularly in the U.S. where officials like Neel Kashkari have hinted at potential rate hikes.

Where it sits in our coverage

Our consensus target for NZD/USD is 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This dovish outlook from the RBNZ diverges from the more hawkish sentiment expressed by bofa, which anticipates a lower target, while jpmorgan aligns more closely with our central view. The desk's call sits comfortably within the upper bound of the consensus range, reflecting a cautious but optimistic outlook for the NZD.

How other firms see it

Firms aligned with a dovish stance include jpmorgan, which supports the RBNZ's measured approach, while bofa represents a contrary view, advocating for more aggressive tightening in response to inflation pressures. This divergence highlights the varying interpretations of the impact of global supply shocks on domestic monetary policy.

Key currency pairs to watch include NZD/USD, which will reflect the RBNZ's positioning relative to the Fed's actions, and AUD/NZD, as the RBA's responses may further influence NZD dynamics in the context of regional economic stability.

What the calendar says

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