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Westpac economics sees the RBNZ leaving the OCR at 5.5% at the February Monetary Policy Statement and adopting a hawkish outlook for the OCR.

The RBNZ left the OCR at 5.5% as widely expected. The overall tone of the Statement is a touch more hawkish than in the May Statement. In many respects the RBNZ's view on the balance of risks for inflation and interest rates is converging towards our own. That said, during the press conference, Governor Orr indicated that he remained "very comfortable" with the current OCR setting, suggesting that the MPC still has some ground to travel before they decide to implement the 25-basis point hike in the OCR that we continue to expect in November.

Kohler used data published by CBA which analysed the spending habits of its customers to show 18 to 34-year-olds are cutting back while hose over 35 are spending more despite high inflation.

The Board now believes that the recent data is consistent with achieving the inflation target. It also expresses uncertainty around the link between tight labour markets and inflation. It will be another close call in September but thereafter we expect the weak economy to dominate policy. The first rate cut is not likely until the September quarter 2024.

The Reserve Bank Board meets next week on August 1. Westpac has consistently argued that a further increase in the cash rate should be the appropriate policy response at the August meeting and we confirm that view.