RBNZ Hikes Cash Rate Again in Step Towards 3% Target

The Reserve Bank of New Zealand (RBNZ) is expected to hike its cash rate from 2.50% to 2.75% next week, marking the second step in a likely three-step move to 3%.

This decision aims to remove stimulatory settings and put interest rates in neutral, which is around 3%. The RBNZ believes that this will help inflation settle back down near 2%, as it remains above target.

However, some experts disagree with the RBNZ's plan, arguing that interest rates should remain stimulatory for now to encourage investment and hiring. They point out that the economy needs support, and inflation pressures are expected to ease from here.

The RBNZ has telegraphed its path, with wholesale rates market pricing in a near-100% probability of a move to 2.75% next week. A 3% cash rate is fully priced by year-end, and hikes are thought to continue next year, with an implied cash rate of 3.65% to end 2027.