The third quarter GDP figures are likely to come at a bad time. If the economists surveyed by Bloomberg are right, economic growth is likely to have weakened again in Q3, and the upward surprise in the second quarter will prove to be an outlier. As a result, growth is likely to move further away from the pre-pandemic trend. At first glance, stubbornly high inflation and a weakening real economy do not sound particularly favorable for the RBNZ.

On the other hand, the slowing economy could also play into the RBNZ's hands. The statement from the Oktober meeting stated that ‘a prolonged period of subdued activity’ may be needed ‘to reduce inflationary pressures’. They argued similarly at the end of November. With this in mind, a weaker GDP number could be beneficial for the RBNZ.

Meanwhile, the RBNZ is unlikely to leave the policy rate at its current high level forever. If economic growth turns out to be significantly weaker than expected today and inflation does not fall more sharply in the coming months, the RBNZ is likely to face a dilemma. But for now, given the stubborn inflation and the hawkish central bank, I would be cautious about pricing in larger rate cuts than the market currently expects.