RBNZ Preview: Forecasts from eight major banks, accounting for two back-to-back double-dose lift-offs

The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its monetary policy decision on Wednesday, May 25 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 eight major banks.

A 50 bps hike to the Official Cash Rate (OCR) from 1.50% to 2% is well priced in by the market.   

ANZ

“We expect the RBNZ will raise the Official Cash Rate (OCR) 50bp to 2.00%. Beyond that, the path is murkier. We continue to expect the RBNZ to switch to the more usual pace of 25bp hikes from July onward as evidence mounts that demand is cooling. However, if any more upside surprises to inflation emerge, the hurdle for another 50-pointer in July is low.”

Westpac

“We expect the RBNZ to raise the OCR by another 50 basis points to 2.00%. The OCR is still a long way from where it ultimately needs to be to get on top of New Zealand’s burgeoning inflation problem. The RBNZ has now accepted the logic that stronger action early on will reduce the need for an even more painful peak in interest rates in the future. We expect the RBNZ to signal a further series of OCR hikes on the way to a peak of around 3.5%.”

UOB

“We think that it is now likely that the RBNZ will hike by another 50bps at the May meeting.”

Nordea

“The RBNZ is likely to continue hiking interest rates by 50bp at the next meetings to make up for lost ground and get on top of surging inflation.”

Standard Chartered

“We expect the RBNZ to hike OCR to 2.0% from 1.5%. Hawkish central bank rhetoric and elevated (and broad-based) inflation suggest that the RBNZ is keen to get the OCR to neutral as quickly as possible. While the latest inflation expectations data for Q2 was rather flat from Q1 and may reflect some semblance of ‘anchoring’ of inflation expectations, 2Y (3.3%) and 5Y (2.4%) inflation expectations are still much higher than the mid-point of 2%. In addition, still-high commodity prices and a weak NZD keeping imported inflation elevated support the case for a 50bps hike. At 2%, we believe the policy rate will be deemed neutral. We will watch for the central bank’s rhetoric (and any tweaks to OCR projections) to gauge if it intends to tighten significantly beyond neutral. We find it difficult to tighten significantly beyond neutral given weaker sentiment indicators and downside risks to growth.”

TDS

“Both CPI inflation (6.9% YoY) and sectoral core inflation (4.2% YoY) were elevated in Q1 and hint at the urgency needed from the RBNZ to constraint inflation expectations. The Bank seems content with its 'stitch in time' approach to policy and didn’t push back on market pricing which leads us to conclude that the Bank will go ahead with another 50bps hike.” 

Wells Fargo

“High inflation and a hawkish RBNZ sets the stage for another 50 bps hike in May, which would bring the Official Cash Rate to 2.00%. We then expect additional 25 bps rate hikes in July, August, October, and November, which would bring the OCR to 3.00% at the end of 2022.”

Danske Bank

“We expect RBNZ to deliver another 50bp, as they will likely prefer to keep front-loading the rate hikes amid continuing rise in local inflation expectations.”

See – NZD/USD: Vulnerable to disappointment unless RBNZ signals further larger 50bps hikes – MUFG