It may be some time before Reserve Bank Governor Adrian Orr gets to his desired state of being able to "watch, wait, and worry". Photo: RNZ / Dom Thomas
The Reserve Bank (RBNZ) is set to deliver its eighth consecutive rise in the official cash rate (OCR) this Wednesday as it does another lap in its anti-inflation marathon.
Another 50 basis point rise in the OCR to 3.5 percent, the highest level since mid-2015, would seem to be a given, along with another hawkish statement talking of the need to keep raising rates at pace to get inflation back within the 1-3 percent target band.
"The key messages this time should, therefore, remain similar to August's: that the RBNZ will keep lifting the OCR until it is 'confident there is sufficient restraint' in place, and it is 'resolute' in meeting its remit'," ASB chief economist Nick Tuffley said.
Over the past year the OCR has been raised from the emergency Covid-19 level of 0.25 percent to 3 percent through seven successive hikes, the past four of 50 basis points, the most aggressive tightening in monetary policy history.
Inflation is believed to have peaked at the second quarter's 7.3 percent annual rate with fuel prices in particular having come off the boil, but the beast remains stubborn.
But everywhere else the RBNZ looks it finds an economy that refuses to lie down, with economic growth a solid 1.7 percent in the second quarter, a labour market that is drum tight, wages growing at decade highs, a New Zealand dollar that has fallen 5 percent over the past three months, and a deteriorating world outlook.
Kiwibank economists said the RBNZ was starting to get traction in slowing local demand through the OCR rises so far, but it could not afford to let up.
"Many mortgagees are rolling off very low rates and onto much higher rates in the next three to six months.
"Unfortunately, the RBNZ needs to see this pain in households before they are confident they'll beat inflation back down to 2 percent. And inflation is a problem that refuses to back down," they said.
When will it end?
A few months ago many forecasters were suggesting the RBNZ would halt the aggressive rate rises in November, when a further 50 basis point rise to 4 percent is expected in the last monetary statement of the year.
Last week RBNZ Governor Adrian Orr said more work was needed to beat inflation but the central bank was getting there and the tightening cycle - interest rate rises - was well advanced.
But the global inflation battle is far from finished, and the US Federal Reserve is leading the charge and jangling the nerves, as it raises its rates putting pressure on currencies around the world as well as longer term interest rates, which adds to the pressure on the RBNZ.
Financial markets are now pricing in the OCR hitting 4.5-4.75 percent by mid-2023.
"We can't stress enough our fear that the rapidity of rate increases globally, coupled with the disastrous consequences of Europe/UK's energy crisis, means things could well and truly turn to custard," BNZ head of research Stephen Toplis said.
"The way things are going it's increasingly looking like a 'when' not an 'if'."
For now households have little choice but to be thankful for full employment and wages staying within sight of inflation, as they carefully manage their finances.
It could be a while yet before Orr gets to his desired state of being able to "watch, wait, and worry", let alone contemplate rate cuts.