RBNZ Hike Expected, But Markets Bet on More Aggressive Tightening

The Reserve Bank of New Zealand (RBNZ) is expected to increase its overnight cash rate by 25 basis points to 2.75% on September 2nd.

This move would bring rates in line with the RBNZ's previous statement that 'some further reduction in monetary stimulus is likely to be required'. The bank's May projections, based on higher oil price assumptions, signaled rates could reach 3.0% by year-end and remain there throughout 2027.

However, markets are currently pricing a more aggressive tightening cycle, with some even expecting rates to hit 3.50% by mid-2027.

We see scope for dovish risks heading into the meeting as the bar for the RBNZ to validate market expectations appears high.