ING’s Francesco Pesole reports that the Reserve Bank of New Zealand (RBNZ) raised rates to 2.50%, delivering a more hawkish message than expected and signalling further tightening is likely. He notes consensus within the Committee, sees another hike around September or October, but stresses dovish risks later in 2026 and maintains a 0.59 NZD/USD target by year-end.

Further tightening signalled by rbnz

"The Reserve Bank of New Zealand hiked rates by 25bp to 2.50% today, in line with our call. The accompanying message had a more hawkish tone overall than we had anticipated, though. The statement reads that further hikes “appear likely at upcoming meetings”, even if their timing is “highly uncertain”."

"There is still plenty of uncertainty around the inflation outlook, but the Bank stressed how non-tradable inflation had been persistent even before the war."

"We had suspected a close vote split (4-2) could send dovish vibes, but the minutes said the Committee “reached consensus” to increase rates. This can definitely mean one or two members (we suspect Conway and Silk) preferred a hold, but not casting a dissenting vote means – in our view – there is interest in preserving the market’s hawkish pricing."

"OIS-embedded expectations are for 38bp of tightening by year-end. This meeting has reinforced our previously narrow call for another hike in September/October. Still, risks remain on the dovish side, as a delay in tightening looks more likely than two more interest rate increases, as the next round of projections should show inflation falling back to target by mid-2027."

"NZD’s post-hike rally looks more sustainable in the near term than we had anticipated. The dovish risks highlighted above may only emerge later in the year, when we expect AUD to outpace NZD again. We still target 0.59 in NZD/USD by year-end."

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