According to TD Securities’ Prashant Newnaha, the Reserve Bank of New Zealand (RBNZ) is expected to raise the Official Cash Rate (OCR) by 25 basis points to 2.50% at its meeting next week, citing that current monetary policy remains too accommodative with the cash rate still below neutral levels [1]. Newnaha anticipates further rate hikes in September and notes that both Gross Domestic Product (GDP) and inflation are running above the RBNZ’s forecasts, which argues against delaying the tightening cycle [1].
TD Securities forecasts a measured pace of rate hikes, with the RBNZ potentially signaling patience regarding how quickly it intends to lift the cash rate towards neutral. This approach is expected to limit any significant uptick in yields following the hike headlines, and any initial strength in the New Zealand dollar (NZD) is unlikely to be outsized [1].
While acknowledging that recent oil price movements may prompt the RBNZ to hike at a slower pace than initially forecast, TD Securities maintains its call for a July hike, followed by additional increases in September, December, and February, targeting a cash rate of 3.25% [1]. The analysis suggests that even with a 25bps hike in July, monetary policy would remain accommodative, as the cash rate would still be 75-100bps below neutral [1].
Newnaha argues that taking back 50bps of previous cuts over July and September is prudent, especially since markets were previously concerned about a potential inflation problem before the US/Iran war. Although the RBNZ could opt to wait until September to begin hiking, TD Securities sees little justification for further delay given the current loose policy conditions [1].
CONCLUSION
TD Securities expects the RBNZ to raise the OCR by 25bps in July, with further hikes likely as inflation and GDP exceed forecasts. The anticipated measured pace of tightening is expected to keep market reactions moderate, with limited impact on yields and the NZD. The analysis underscores the need for policy normalization amid persistent inflation pressures.