TD Securities’ Prashant Newnaha says the RBNZ kept the OCR at 2.25% and now signals a first 25 bps hike in late 2026 or early 2027, followed by limited tightening. TD keeps its own OCR path unchanged, with hikes in Q1 and Q2 2027 and another in 2028, while warning risks skew toward earlier and more aggressive normalisation.

RBNZ signals slow, shallow tightening cycle

"The RBNZ kept the Official Cash Rate (OCR) at 2.25% in a unanimous decision. The Bank's updated OCR track now pegs the first 25bps hike to later this year or early next year. However, there is limited urgency to raise the cash rate thereafter with a follow-up 50bps of hikes over the following 2 years."

"Significant excess capacity, subdued wage growth, an economic recovery that is patchy across regions/sectors with inflation expected to decline gradually towards target underwrites the Bank's patient approach to normalising policy. Further, the Bank does not anticipate lifting the cash rate above neutral over its projection horizon to Q1'29."

"We make no changes to our forecast OCR path. We stick with the RBNZ on hold this year, reaffirm our call for 25bps hikes in Q1 and Q2 next year, taking the OCR from 2.25% to 2.75%. We forecast another 25bps hike for 2028."

"Rather than shooting itself in the foot and telegraphing a need to recalibrate policy more quickly to get on top of inflation, the Bank has made it clear that it does not intend to short circuit the economic recovery that the sharp series of rate cuts were delivered to engineer."

"We do acknowledge however, the risk to our call is for the RBNZ to begin hiking earlier and/or more aggressively than we or the Bank forecast. We and the Bank severely underestimated the speed and the depth of the easing cycle initially, so the reverse scenario, underestimating the speed and the magnitude of tightening is entirely plausible as well."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)