MUFG's strategists flag the Reserve Bank of New Zealand (RBNZ) as a key event risk, with markets expecting no move this week but assigning a meaningful probability to a July rate hike. They note that New Zealand rate markets are nearly fully pricing three hikes by year-end, and that prior RBNZ guidance stresses readiness to act decisively if inflation pressures persist.

Markets eye potential tightening path

"The RBNZ is expected to leave its policy rate unchanged in the week ahead. Market participants will be watching closely to see whether it provides a strong signal on the potential for a rate hike as soon as the following meeting in July."

"New Zealand rate market participants are pricing in a high probability (around 16bps) of a hike at the July policy meeting and are nearly fully pricing in three hikes by the end of this year."

"At the last policy meeting in April, the RBNZ signalled that if medium-term inflation pressures do not subside, then “decisive and timely increases in the OCR would be required.”"

"Governor Breman has previously stated that the RBNZ is ready to act decisively and in a timely manner if there are signs that short-term inflation is feeding into more persistent pressures, in order to ensure inflation settles sustainably at 2% over the medium term."

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