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RBNZ expected to lift OCR to 2.75% in September
The central bank is seen potentially signaling a data dependent path for an October rate decision as markets weigh how close policy is to the neutral level near 3.0%.
Action Forex expects New Zealand’s central bank, the RBNZ, to raise the Official Cash Rate by 25 basis points to 2.75% at its 2 September monetary policy meeting, with the decision likely reached by consensus.
The analysis says the RBNZ may be equivocal about an additional October OCR increase, favoring a data dependent approach because the OCR will be near the RBNZ’s often emphasized neutral level. It points to September and October data releases and notes that lower energy prices and inflation expectations since May could imply modest downward adjustments to the RBNZ’s OCR forecasts, though risks remain around those projections.
In the base strategy described, the RBNZ’s path aims to return the OCR to around 3.0% by year end. The piece outlines hawkish and more dovish scenarios, including the possibility markets price in increases taking the OCR to about 3.25% by year end versus scenarios where the bank pauses further hikes and only revisits December depending on the inflation outlook.
While the forecast path is framed as relatively clear, the outlook is tempered by a fragile economic recovery and an embryonic labor market improvement, alongside core inflation still viewed as too high. The analysis also cautions against assuming inflationary supply shocks will dissipate quickly.