Brown Brothers Harriman’s (BBH) Elias Haddad expects the Reserve Bank of New Zealand (RBNZ) to keep the OCR at 2.25%, with Governor Breman set to update growth and inflation projections. Despite economic slack, elevated inflation and market pricing of nearly 100 bps of tightening limit policy flexibility. Haddad warns a prolonged energy shock and weak terms of trade will keep NZD defensive versus major currencies.

Limited RBNZ room leaves NZD vulnerable

"The RBNZ is widely expected to leave the Official Cash Rate (OCR) unchanged at 2.25% for a second straight meeting (Wednesday). There is no updated Monetary Policy Statement (MPS) associated with this meeting, but Governor Anna Breman flagged an update to the bank’s inflation and growth outlook."

"In a speech delivered on March 24, Breman already warned of “somewhat weaker economic growth in 2026” than anticipated in the February MPS and signaled that the bank will look through “a short-lived disruption and a temporary increase in petrol prices.”"

"The RBNZ has limited room to sidestep tightening despite excess slack in the economy given that headline inflation is already slightly above the 1 to 3% target range and most measures of core inflation are above the target mid‑point. The swaps curve price in nearly 100bps of OCR increases in the next twelve months."

"A prolong energy shock will keep NZD trading on the defensive against most major currencies, weighed down by New Zealand’s unfavorable terms of trade dynamic and heightened stagflation risk."

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