TD Securities’ Prashant Newnaha expects the Reserve Bank of New Zealand (RBNZ) to raise the Official Cash Rate (OCR) by 25bps to 2.50% at next week’s meeting, keeping policy too accommodative with the cash rate still below neutral. Newnaha anticipates further hikes in September and sees Gross Domestic Product (GDP) and inflation running above RBNZ forecasts, arguing against delaying the start of the tightening cycle.

Hiking now but at measured pace

"TD forecasts the RBNZ to hike the OCR 25bps to 2.50% at next week's meeting, but it could signal patience around how quickly it intends to lift the cash rate towards neutral. This should cap any uptick in yields on hike headlines while initial NZD strength is unlikely to be outsized."

"While we concede recent oil moves may see the RBNZ hike at a slower pace than our forecast(Jul, Sep, Dec and Feb to 3.25%), we stick with our call for a July hike."

"A 25bps hike at the July meeting would still have monetary policy too accommodative. The cash rate is currently around 75-100bps below neutral."

"Taking 50bps of those cuts back over July & Sep is prudent considering markets were debating if the RBNZ had an inflation problem brewing before the US/Iran war."

"Of course the Bank may decide to wait till Sep to begin hiking. However, we struggle to see the catalyst for hiking then when conditions are already loose now and will likely loosen further if it decides to wait another two months to calibrate policy."

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