RBNZ: Inflation risks and delayed cuts – ING

ING’s Francesco Pesole argues that the Reserve Bank of New Zealand’s November 2025 projections underestimated inflation, with recent CPI data overshooting forecasts. ING expects the RBNZ to keep rates on hold in February but sees higher inflation projections and an earlier rate-hike path, with two hikes in 2026 and another in 2027, as sticky prices challenge last year’s aggressive easing.

Sticky inflation challenges prior easing cycle

"The latest RBNZ projections from November 2025 have proved too optimistic on disinflation. Fourth‑quarter CPI came in at 3.1% YoY versus the bank’s 2.7% estimate, and non‑tradable CPI at 3.5% versus the 3.2% projection. This raises the question of whether the RBNZ cut rates too aggressively last year."

"The chances of a rate change at this meeting are very low, so forward-looking language and, above all, new economic projections will drive the market reaction. The November rate path showed a first hike only in 2Q27, but that assumed headline inflation falling to 2.2% in the second half of 2026. A revision higher in inflation numbers would make a strong case for bringing forward the expected rate hike."

"In our estimates, inflation will not fall below 2.4% at any point this year, and we currently expect a 1Q print around 2.7 to 2.8%, well above the RBNZ’s 2.3% estimate. If the RBNZ staff are using similar assumptions, we could see a materially higher revision in inflation and the rate path."

"We expect two rate hikes to 2.75% in New Zealand this year, starting in either September or October. In our view, this will be driven primarily by sticky headline inflation, which should make clear that the 2025 easing cycle went too far. We also think another hike will be needed in 2027 to bring rates back to the 3.0% neutral level."

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