New Zealand Dollar: Sticky inflation supports more RBNZ hikes – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad expects New Zealand Q2 Consumer Price Index (CPI) to remain well above target, with quarterly and annual readings only slightly below the RBNZ’s own projections. Combined with a firmer domestic growth outlook, this supports additional rate hikes after July’s move to 2.50%. Swaps discount 100 bps of tightening over twelve months, taking the OCR near the top of the estimated neutral range.

Above-target CPI expected to support the NZD

"Headline CPI is expected at 1.4% q/q (RBNZ projection: 1.6%) vs. 0.9% in Q1 to be up 4.0% y/y (RBNZ projection: 4.2%) vs. 3.1% in Q1."

"Above target inflation and a more favorable domestic growth outlook argue for additional RBNZ rate hikes which is NZD supportive."

"The swaps curve price in 50bps hikes by year-end and a total of 100bps of tightening over the next twelve months to 3.50% - near the top of the RBNZ estimated neutral range (2.20%-4.10%)."

"At its last July 8 meeting, the RBNZ raised the Official Cash rate (OCR) 25bps to 2.50%, the first hike in three years, and indicated that “further OCR increases appear likely at upcoming meetings.”."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)