Oil Price Surge Puts Rate Hike Back on Table for NZ Election

The Reserve Bank of New Zealand may be forced to raise interest rates again in October due to rising oil prices and bond yields.

Just a month ago, markets were pricing in little chance of a rate hike in October, but now there's a near two-thirds chance of a hike priced for the first meeting and around an even chance of two rate hikes before the end of the year, according to BNZ Economics.

The oil price surge back over US$100 (NZ$172) a barrel has put upward pressure on domestic fuel prices and imported inflation generally. The Reserve Bank's September Monetary Policy Statement assumed the Dubai crude oil price would average US$83.70 (NZ$144.66) across the September quarter, but it is now almost 17 percent higher than that.

BNZ predicts the full impact of the elevated oil prices will be a big shock to the fourth-quarter inflation reading, potentially pushing it up to 4.2 percent annual rate, 0.3 percent above the Bank's estimate.