• The Reserve Bank of New Zealand is expected to raise the OCR by 50bps to 2.00% with OIS fully pricing a 50bps hike.
  • RBNZ have delivered four consecutive rate hikes and even surprised markets with a larger than expected 50bps increase last month.
  • Front-loading of tightening is expected to continue with inflation at a 32-year high.

OVERVIEW: RBNZ will announce its rate decision in which the central bank is expected to continue its hiking cycle; most analysts anticipate a 50bps increase in the Official Cash Rate to 2.00% and OIS fully price a rate rise of this magnitude.

PRIOR HIKES: The RBNZ has lifted rates for the past four consecutive meetings, and even surprised markets in April with a larger than expected increase of 50bps (exp. 25bps), while it stated at the past meeting that it will remain focused on ensuring current high consumer price inflation does not become embedded into longer-term inflation expectations and that monetary tightening was brought forward. But it also noted that it remains comfortable with the outlook on the OCR, as outlined in the February MPS. This suggests that the central bank’s more aggressive move in April was just front-loading, and its view for the eventual destination of rates remains unchanged, where it had previously forecast the OCR at 2.84% in June 2023 and at 3.35% in March 2025.

HIGH INFLATION REINFORCES THE TIGHTENING VIEW: Analysts at Westpac think the RBNZ will likely continue front-loading, and the bank expects three more 50bps rate rises. ASB Bank, Kiwibank and a majority on the NZIER RBNZ shadow board all call for a 50bps hike at the upcoming meeting too. The broad consensus for tighter policy is supported by inflation data, where Q1 CPI rose at its fastest rate in 32 years at 6.9% (exp. 7.1%, prev. 5.9%), while the 1-year Inflation Expectations in Q2 also increased to its highest in more than three decades at 4.88% vs prev. 4.40%, although the RBNZ stated that longer-term inflation expectations remained anchored close to or within the 1-3% target.

ANNOUNCEMENT: The announcement is set for Wednesday at 03:00BST/22:00EDT. The initial focus will be on the rate decision. Attention will then turn to the policy statement for the central bank’s latest OCR projections and any clues on whether it will maintain an aggressive pace of 50bps increments in its hiking cycle which would be supportive for NZD. Conversely, any hints of policymakers slowing down on tightening will likely pressure the currency, while participants will also get to tune in to the MPS livestream which begins an hour after the rate announcement.