RBNZ Preview: Forecasts from six major banks, inflation makes 50 bps a shoe-in

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, July 13 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 six major banks.

The RBNZ is seen raising the Official Cash Rate (OCR) by 50 basis points (bps) from 2% to 2.5% in July. As FXStreet’s Dhwani Mehta notes, RBNZ forward guidance holds the key.

ANZ

“We expect the RBNZ will raise the OCR 50 bps to 2.50%. On balance, the data since the May MPS has not suggested any meaningful easing in inflation pressure. Indeed, if the RBNZ did publish forecasts at interim meetings, the OCR track would likely be a little higher, if anything.”

Westpac

“We expect the RBNZ to raise the OCR by another 50 bps to 2.50%. Developments since the May statement have been mixed for the monetary policy outlook. Near-term inflation is still running hot, but the risks of a global slowdown have increased and early signs of a cooling in domestic activity have started to emerge. For now, the RBNZ will need to carry through with the interest rate hikes it has signalled, or risk undoing its good work so far on bringing inflation pressures under control. But at some point in the coming months, it will be appropriate to signal that the end of the tightening cycle is near.”

Standard Chartered

“We expect the central bank to proceed with a 50 bps hike given a hawkish RBNZ, higher inflation and a weaker NZD (which places upward pressure on tradables inflation). We see only one more 25 bps hike in August and project the terminal rate at 2.75% (more dovish than market expectations and the RBNZ’s forecast) as we expect growth concerns to take priority over inflation fears in H2. Markets will be watching for any signs of a change in the hawkish rhetoric given rising concerns about a recession and as the central bank was the first among developed markets to hike rates in this cycle.”

ING

“Another 50 bps hike seems likely. But a trembling housing market and deteriorating economic picture suggest the RBNZ may have to recalibrate its hawkish message soon – probably not at this meeting, but potentially in August. And the rest of the world will likely take note. NZD to remain weak for now.”

TDS

“The surprise contraction in Q1 GDP wouldn't deter the RBNZ's hawkish stance just yet and we expect a third straight 50 bps hike to tame inflation.”

Citibank

“We expect the RBNZ MPC to deliver another 50 bps increase in the OCR to take it to 2.50%, a level broadly associated with a neutral level of monetary policy. But taking policy to neutral is unlikely to satisfy the MPC, it is likely to be only a step towards a policy level that is restrictive. Domestic hard activity data since the last OCR decision on May 25 shows a solid core of domestic demand while house prices declines have been small, with prices arguably still higher than what the RBNZ would prefer. In addition, the NZ labor market remains consistent with the RBNZ’s assessment that it is stronger than what would be consistent with full employment. Citi analysts do not however, expect the MPC to respond with a 75 bps increase in the OCR as the RBNZ remains ahead of other central banks in terms of the policy cycle.”