The Reserve Bank of New Zealand (RBNZ) is set for a 25bps OCR hike to 0.50% in August on Wednesday. As we get closer to the release time, here are the forecasts by the economists and researchers of nine major banks ahead of the much-awaited monetary policy announcement.
FXStreet’s Dhwani Mehta explains how NZD/USD is positioned technically.
ANZ
“We expect the RBNZ will raise the Official Cash Rate (OCR) 25bp to 0.50% at the August Monetary Policy Statement. We would not rule out a 50bp hike along the lines of ‘while the going’s good’, but think the RBNZ is likely to go for a more measured approach, with follow-up hikes in October and November. The fact that rate hikes may well end up being reversed before long is not a good reason not to raise them now.”
Westpac
“We now expect the Reserve Bank to leave the OCR on hold. Regardless of the economic case for higher interest rates, there is nothing to be gained from pushing the OCR higher now, rather than waiting for more clarity on the covid situation. Experience shows that economic activity tends to bounce back readily once covid restrictions are lifted. And when that happens, the RBNZ will be left facing many of the same issues as before: an economy that is running up against cost pressures and capacity constraints, with risks that inflation could become more persistent. Ultimately, we expect OCR hikes will still be needed, but we will review the likely timing of this as we get more clarity.”
TDS
“We are in line with consensus for a 25bps lift in the OCR to 0.5%. Activity above pre-covid levels, an extremely strong labour market and brewing inflation pressures no longer justify emergency policy settings. Expect the Bank to upgrade its GDP, CPI and labour market forecasts. While the RBNZ is one of the leaders of the G10 hiking narrative, the direction of the broad USD should dictate the NZD's near future. Still, RBNZ actions plus a relatively improving NZ growth story should support NZD versus the likes of CAD, AUD, and CHF in the weeks ahead.”
ING
“We expect the RBNZ to hike rates by 25bp and forecast at least another one of the same magnitude by the end of the year (more likely in November rather than October), as data should continue to show signs that the kiwi economy is indeed overheating. Such a move has been fully priced in, and much of the market reaction will likely depend on the forward guidance on future tightening. We think NZD still has significant room to benefit from the RBNZ's hawkishness in 2021.”
Standard Chartered
“We see the official cash rate (OCR) being hiked 25bps to 0.50%, driven by the central bank’s hawkish tone, a strong labour market and rising inflationary pressures. The risk to our call is that the central bank stays on hold in August or hikes with a dovish tone for the following reasons: (1) business confidence has plateaued; (2) business lending remains weak, albeit improving MoM; (3) the vaccination rate remains low despite a pick-up in pace; (4) concerns about a global demand slowdown have risen, evidenced in falling commodity prices (including of milk); and (5) despite its hawkishness in July, nuances in the RBNZ’s statement leave room to continue some monetary stimulus.”
BofAM
“We expect the Bank to raise the official cash rate (OCR) by 25bp to 0.5% despite tightening of financial conditions from the abrupt end to the bond purchasing program (LSAP) in July and announcement of further macroprudential tightening. The recent repricing of NZD rates means an August hike of 25bp is now fully priced in and market rates suggest a slight chance of the OCR being lifted by 50bp. The NZD rates market is now expecting RBNZ policy tightening to be aggressively front-loaded (near-75bp by Nov '21) and means risk is for the RBNZ to not meet hawkish market expectations in coming months.”
MUFG
“We now expect the RBNZ to begin rate hikes at this week’s meeting. There is even the non-negligible risk of a larger 0.50 point hike. Policy communication over the need for further rate hikes will be important as well given the market has moved to price in over 100bps of hikes in the year ahead.”
Citibank
“We now expect RBNZ to increase cash target for the first time since July 2014, this week. This is because the RBNZ Governor has continued to turn-up the volume on hawkish remarks recently that has led markets to more than fully price a 25bp rate hike this week and a subsequent +15bps priced for the October 7 meeting. It would therefore be a surprise if the RBNZ didn’t raise the cash rate this week.”
Danske Bank
“The RBNZ is widely expected to hike the official cash rate by 25 basis points on the back of strong domestic economic developments and rapid labour market recovery. Markets have fully priced in the hike along with one additional hike before year-end, which leaves little upside potential for NZD even if RBNZ takes a very hawkish stance.”