The RBNZ hikes rates again, with more to come
The RBNZ has continued to raise rates given average core inflation has been stuck above the 2% target.
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As seemed likely, the RBNZ has continued to raise rates, following in the RBA’s footsteps by lifting the cash rate by another 25bp from 2½% to 2¾% in a “consensus” decision by the Monetary Policy Committee.
The RBNZ characterised the decision as “gradually removing monetary stimulus”, which it thinks “reduces the risk that the [cash rate] needs to increase by more later”.
The RBNZ also signalled that more rate hikes are likely (“Conditional on the central economic outlook, members judged that the [cash rate] may need to increase further”).
The decision was not surprising given underlying inflation has been stuck above the 2% target for some time, even though the RBNZ is now highlighting the average of a range of measures tracking at about 2½% rather than its own sectoral factor model running at around 2¾%.
Our base case is still for further rate rises, with another hike likely this year – probably when the RBNZ updates its outlook at the 9 December policy meeting rather than the 28 October meeting ahead of the 7 November election – and an expected peak in the cash rate of about 3-3½% based on simple policy rules and the current economic outlook.
If realised, this peak in the cash rate would represent a slightly tight monetary policy given the RBNZ still thinks the long-term neutral cash rate is 3.1%.
The RBNZ’s updated economic forecasts were mostly little changed.
- There was an almost identical forecast profile for the cash rate, with the policy rate expected to reach 3% by Q1 2027, rising to 3.2% by end-2027, and eventually settling at 3.3% in 2029.
- An “uneven” economic recovery is under way, such that the unemployment rate is expected to stay at around 5½% for the rest of this year, slowly improving from next year.
- Headline inflation – where the RBNZ does not publish forecasts of underlying inflation – is expected to ease to 3.7% by the end of this year, reaching the 2% target in 2028, half a year later than previously assumed.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
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