RBNZ Preview: Forecasts from five major banks, more worries, more waiting

We expect the RBNZ to keep the OCR unchanged at 5.5% while striking a more hawkish tone. Data since the August Monetary Policy Statement (MPS) has overall been stronger than anticipated, dairy prices aside. Potential wealth effects from the reheating housing market are concerning. We continue to expect a hike at the November meeting and risks are tilting towards even more being required in 2024.

We expect the RBNZ to stay on hold though data since the August meeting adds support to inflation remaining elevated for longer. The question now is whether the Bank is re-assessing the balance of risks around inflation or sticking with the lagged impacts of rate hikes still to filter through. We are not expecting a more hawkish shift but we are on the lookout for it. Would a hawkish RBNZ statement inspire a NZD comeback? For now, the NZD is closely tied to factors such as risk sentiment and US 10Y real yields. Our expectation of a marked deterioration in US data in the months ahead should take the tailwind away from the USD and could benefit the NZD. 

We think the RBNZ will keep the OCR at 5.50% at its October review. We expect the RBNZ to retain the tightening bias expressed in the August Statement and will aim to retain maximum flexibility to tighten (or not) in November should data warrant. A surprise tightening to 5.75% is a risk, but we think no more than a 10-20% chance. 

The RBNZ is unlikely to raise interest rates again. However, risks are tilted squarely hawkish.

While a further moderation in growth trends and inflation pressures seems possible over time, it appears far too early yet for the RBNZ to contemplate monetary policy easing. Accordingly, we look for the RBNZ to keep its policy rate steady at 5.50%.