Reserve Bank of New Zealand: Banks Preview, more surprises in store?

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, May 24 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 expected to raise the key Official Cash Rate (OCR) by 25 basis points (bps) in May. All eyes remain on the updated projection for OCR peak and Governor Orr’s presser.

ANZ

“We expect the RBNZ will raise the OCR 25 bps to 5.50%. We see a 20% chance of a 50 bps hike and a 5% chance of a pause. Either could backfire by driving down future OCR expectations. We are building one more 25 bps hike in July into our own OCR forecast, which would take the OCR to 5.75%. The (relatively) happy place to sit and ‘watch, worry and wait’ keeps inching just out of reach. We expect a relatively firm tone from the RBNZ, but also words that leave all doors open depending on how the data evolves from here, which could be up, down or sideways relative to their expectations.”

TDS

“We lift our estimate of RBNZ terminal from 5.50% to 6% and expect the Bank to deliver a 50 bps hike this week. The RBNZ's net migration forecasts and fiscal stimulus assumptions will likely be revised higher. Both add upside risks to domestic inflation. There is also no evidence that offshore Central Banks are making progress on bringing down core inflation. However, the risk to our 50 bps call is the Bank viewing monetary policy as sufficiently restrictive. Given monetary policy is contractionary, the Bank may opt for a 25 bps hike.”

Danske Bank

“We expect the RBNZ to hike the cash rate by 25 bps to 5.50%.”

ING

“Markets are pricing in a peak at around 5.80%, but we think the RBNZ can deliver an extra bit of hawkishness and signal tightening until the 6.00% mark as it hikes by 25 bps this week. That would have positive implications for NZD in the near term.”

Citi

“The RBNZ is expected to increase the OCR by 25 bps. The step down to 25 bps is largely expected on the back of a slowdown in domestic activity, yet inflation still remains higher than the central bank’s target. The recent deceleration in inflation expectations would also help steer the hawkish RBNZ towards a lower quantum of rate hikes. We expect this to be the last rate hike the Bank delivers, which is also in-line with the Bank’s guidance. However, given the NZ Budget last week and substantial amount of rebuilding expected in H2’23, there are hawkish risks which could see the RBNZ continue to signal more rate hikes could be needed. Forecasts in the MPS are unlikely to change materially, although there might be some upgrade to growth estimates in H2 because of reconstruction post-Cyclone. The RBNZ though, is likely to continue to suggest that inflation risks remain skewed to the upside and is unlikely to turn dovish anytime soon with rate cuts also unlikely in 2023.”

Wells Fargo

“We fully expect the RBNZ to hike rates 25 bps. Moreover, while we believe that will be the peak for the current cycle, we will be scrutinizing the central bank's updated economic projections for any insight into whether policy rates might still need to be raised further.”