With a 25 basis point hike already close to fully priced by financial markets, ASB’s preview suggests limited scope for a hawkish surprise on the decision itself, meaning any market reaction is more likely to come from the tone of the accompanying statement and the shape of the published OCR track. ASB expects that track to signal at least one further hike by year end and a peak around 3.3 percent, somewhat below current market pricing, which if delivered as expected could see a modest dovish repricing in the front end of the New Zealand curve and some pressure on the kiwi dollar. The bank also flags tightening financial conditions, including a firmer trade-weighted index and higher swap rates, as a theme the RBNZ is likely to cite, which cuts against the case for an especially aggressive statement. With two-sided risk around the medium-term inflation outlook, currency and rates markets are likely to stay sensitive to incoming NZ data over the following months regardless of Wednesday’s outcome.
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Earlier:
- Reserve Bank of New Zealand Shadow Board split, most back 25bp rate hike this week
- Preview: Inflation and growth strength point to further RBNZ tightening, BNZ says
- 90% of economists expect RBNZ hike on September 2, poll shows
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ASB sees the RBNZ taking the path of least resistance with a widely expected September 2 hike, while flagging two-sided risk to where the tightening cycle ultimately peaks.
Summary:
- ASB expects the RBNZ’s six-member Monetary Policy Committee to reach consensus on a 25bp OCR hike to 2.75% at 2pm on Wednesday, September 2.
- Three factors support the move: inflation still running above 3%, an OCR still well below neutral, and a desire to avoid unnecessary market volatility.
- ASB expects the RBNZ to retain a conditional tightening bias, stressing that further hikes are needed to sustainably return inflation to 2%.
- Published RBNZ projections are expected to show inflation falling below 3% by early 2027, converging to the 2% midpoint thereafter, alongside a cyclical recovery in growth.
- ASB expects the OCR track to signal at least one more 25bp hike by year end, with a published peak near 3.3%, and expects the RBNZ to downplay the track’s signal value given its conditionality.
- ASB’s own view is for the OCR to end 2026 at 3.25%, with two-sided risk around that peak depending on how the inflation outlook evolves.
The Reserve Bank of New Zealand is widely expected to hike the Official Cash Rate by 25 basis points to 2.75 percent when its Monetary Policy Committee delivers its decision on Wednesday, September 2, according to a preview from ASB. The bank’s economics team describes the decision as reasonably straightforward, with a full 25 basis point move already close to fully priced by financial markets and consensus likely among all six committee voters.
ASB points to three factors supporting the hike. Both headline and core inflation remain uncomfortably high for the RBNZ, with the longer inflation sits above 3 percent raising the risk of a more pronounced overshoot. The OCR would still sit well below assessments of the neutral rate even after a hike, with the RBNZ’s own May estimate putting neutral around 3.5 percent against ASB’s own assumption of 3.25 percent. And the RBNZ’s stated preference for avoiding unnecessary economic instability favours delivering a move that markets and analysts already broadly expect, rather than risking volatility by deviating from it.
Beyond the headline decision, ASB expects the RBNZ to maintain a conditional tightening bias, affirming that further increases are necessary to deliver 2 percent inflation on a sustained basis while stressing that future moves will depend on incoming data. The bank expects the RBNZ to acknowledge a still-resilient global backdrop despite risks including elevated US-Iran tensions, freight disruptions and tariff frictions, while pointing to abundant spare capacity in the labour market as a factor that should temper medium-term inflation pressures even as it supports a period of above-trend growth.
On the published forecasts, ASB expects the RBNZ to show annual inflation falling below 3 percent by early 2027 and converging toward the 2 percent target midpoint, alongside confirmation that a cyclical recovery is expected to unfold through the remainder of 2026. The bank expects the RBNZ’s OCR track to signal at least one further 25 basis point hike by year end, with a published peak around 3.3 percent, similar to May’s projection and somewhat below where markets are currently pricing the cycle.
ASB’s own base case has the RBNZ following the September 2 hike with further 25 basis point increases in October and December, taking the OCR to 3.25 percent by year end, a level it regards as broadly neutral. The bank flags two-sided risk to that view, noting a more gradual tightening path and lower peak is possible if inflation pressures ease, while a higher peak would be needed if inflation proves more persistent than currently expected.
This article was written by Eamonn Sheridan at investinglive.com.