BNZ Sees RBNZ Hiking Rates Further Beyond September

BNZ predicts the Reserve Bank of New Zealand (RBNZ) will raise the Official Cash Rate by 25 basis points to 2.75% at its upcoming September Monetary Policy Statement, citing a 94% market probability.

The bank's forecast for the September quarter annual CPI is 3.7%, above the RBNZ's own July projection of 3.3%. This indicates a growing gap that could lead to more aggressive guidance from the central bank than markets currently expect.

BNZ believes the RBNZ will signal further tightening until the cash rate reaches or exceeds neutral, with a published peak of roughly 3.5%. However, the bank's own house view has the cash rate ultimately rising 25bp at every meeting until reaching 4.0% by May 2027.

BNZ highlighted several risks in both directions, including a potential El Nino-driven recession and a global asset price correction. On the upside, it pointed to structural inflationary pressures that could continue building regardless of central bank responses.