Kiwibank on RBNZ policy and Kiwi exodus

Migration, policy updates, and economic outlook

Kiwibank on RBNZ policy and Kiwi exodus

The Kiwi exodus continues, with the latest migration data showing a record-breaking net migration loss of 52,500 Kiwis waving goodbye to Aotearoa in the year to March.

This follows an ongoing uptrend in departures, particularly among young Kiwis.

The exodus is largely due to pent-up post-COVID travel desires and the relative strength of New Zealand’s labour market compared to major emigration destinations.

“The pull of work and the state of the economy are powerful drivers when it comes to migration flows,” said Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, left to right).

Comparing economic policies: RBNZ vs. RBA

Australia has received just more than half of recent Kiwi departures.

RBNZ has been more aggressive than RBA in slowing the economy, raising rates by 525bp compared to the RBA's 400bp. This aggressive stance has led to a faster cooling of New Zealand's economy, with output contracting in four of the last five quarters.

Even as Australia’s labour market showed a surprising uptick in unemployment, it continued to outperform New Zealand’s. Additionally, Australia’s federal budget showed a return to surplus last week, in contrast to the expected deficit in New Zealand’s upcoming budget.

Focus on RBNZ’s monetary policy

The countdown for RBNZ’s latest monetary policy statement is on. In both its February MPS and its April MPR, the RBNZ stated that monetary policy is working.

“The question around monetary policy is no longer ‘will they or won’t they hike?’, but when will they cut?” the Kiwibank economists said.

Currently, RBNZ’s OCR track indicates a 35% chance of another hike. However, due to continual progress in inflation and ongoing economic weakness, the need for another hike has evaporated. The focus now turns to the timing of rate cuts.

Monetary policy must remain restrictive to get inflation sustainably back within their 1-3% target band,” Kerr, Delgado, and Vergara said.

Inflation is moving in the right direction, but domestic inflation remains at 5.8%, indicating that more time is needed.

Predictions for rate cuts

RBNZ’s last OCR track suggested rate cuts by mid-next year, but Kiwibank predicted cuts to commence in November.

“We see inflation returning to within the RBNZ’s 1-3% target by the September quarter,” the economists said, with confirmation expected by mid-October. This leaves November as the earliest date for rate cuts.

“Monetary policy continues to weigh heavily on economic output, the labour market, and the housing market,” they said.

Recent data from REINZ showed a still soggy Kiwi housing market with prices flat over the month and up less than 3% over the year, still down about 15% from their November 2021 peak.

Kiwibank said RBNZ should maintain pressure by holding the OCR track unchanged, with “upside” risk shaved and downside risk heightened.

“We continue to expect the next move to be a cut in November, well ahead of the RBNZ’s current OCR track,” the economists said.

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