RBNZ More Likely To Wait Until December to Hike, Silk Says

The Reserve Bank of New Zealand (RBNZ) increased its Official Cash Rate (OCR) by 25 basis points to 2.75% at its September meeting, a move that was largely anticipated by market analysts. This marks the second consecutive rate hike by the central bank. Assistant Governor Karen Silk noted that there is a "reasonable weighting" on another 25 basis point hike this year, with a December hike appearing more probable than one in October.

The RBNZ's decision reflects a strategy of gradual withdrawal of monetary stimulus, aiming to bring inflation back to its 2% target without hindering the nascent economic recovery. While the central bank signaled more tightening ahead, it emphasized that future moves would be measured, acknowledging mounting risks to the economic outlook. The RBNZ's cash rate track projects future rates at 2.81% in December and 3.15% by the end of 2027, which is a slower pace than what markets had initially priced in.

Analysts from various banks offered differing forecasts following the RBNZ's announcement. Westpac's chief economist Kelly Eckhold, for instance, foresees a hold in October followed by a hike in December. In contrast, ASB senior economist Mark Smith anticipates two more 25 basis point hikes this year, one in October and another in December, which would bring the OCR to 3.25% by year-end. This divergence in expectations highlights the uncertainty surrounding the future path of monetary policy.

The RBNZ's statement indicated that while the economic recovery has likely resumed, it remains uneven, with spare capacity still present, particularly in the labor market. The committee judged that increasing the OCR to 2.75% is appropriate to sustainably return inflation to target. However, all members agreed that downside risks to activity were significant, and the recovery could remain uneven, underscoring the cautious approach to further tightening.

The New Zealand dollar (NZD) experienced immediate selling pressure post-decision, with the NZD/USD pair falling by 0.58% to $0.5857. This reaction suggests that market participants perceived the RBNZ's forward guidance as less hawkish than some had anticipated, especially with the implication of a more patient approach to future rate increases.