RBNZ Preview: Forecasts from five major banks, very low probability of a hike

The Reserve Bank of New Zealand (RBNZ) will announce its Interest Rate Decision on Wednesday, July 12 at 02:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of five major banks.

The RBNZ is expected to keep the key Official Cash Rate (OCR) steady at 5.50%, marking the end of a 20-month hike cycle. 

ANZ

We expect the RBNZ to keep the OCR unchanged at 5.5%. Anything else would be a massive surprise. Local data since the May MPS has been mixed, but overall supports the RBNZ’s wait-and-see stance. We continue to see the balance of risks tilted towards the RBNZ eventually having to do more, but it’s not today’s story.

Standard Chartered

We expect the RBNZ to keep the cash rate unchanged at 5.5%, with risks tilted slightly to the upside. In the May monetary policy meeting, the RBNZ alluded to the need to keep policy rates higher-for-longer to slow the economy and guide inflationary pressures back to the 1-3% target range. While this is not our base case, the non-trivial risk is that the RBNZ sees the need for further tightening in the face of inertial and more persistent inflationary dynamics that are playing out in the US.

TDS

NZ entered a mild recession in Q2 after back-to-back quarterly declines. The housing market is cooling fast with prices falling by the most in 8 months in Jun and the Q2 QSBO survey also points to business taking a more downbeat view as demand stagnates. Taken together, the RBNZ has enough reasons to leave rates on hold.

Citi

For the first time in almost two years, we expect the MPC to keep the OCR unchanged at the upper bound of the current cycle of 5.50%. It’s mission accomplished for the MPC and the path forward is for maintenance of restrictive monetary policy until inflation is closer to the mid-point of the target band and there are signs of better balance in the labor market. We expect conditions in NZ product and labor markets to be more amenable to reductions in the OCR from Q1’24 even though the technical recession has already commenced ahead of RBNZ expectations for Q323.

Wells Fargo

Overall, the indications are that demand remains subpar, which should eventually see an easing of inflationary pressures over time. Against this backdrop, we believe the RBNZ will be comfortable holding its policy rate steady at 5.50% at its July meeting. That would be the first rate hike pause since the RBNZ began tightening in late 2021.