BNY’s Bob Savage highlights that the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) at 2.25% in a split decision but delivered a hawkish message, lifting its OCR path and inflation projections. Savage now sees Consumer Price Index (CPI) above target through 2026 and a higher terminal rate path, with NZD/USD firmer and front-end New Zealand Dollar (NZD) rates higher after the decision.

RBNZ path repricing lifts NZD

"The RBNZ has kept the OCR unchanged at 2.25% in a split 3-3 decision but delivered a distinctly hawkish message, alongside upward revisions to both OCR and inflation forecasts versus February’s MPS."

"While the bank still highlighted uncertainty around medium-term inflation pressures and balanced higher costs against weak demand, it now signaled that the “OCR will most likely need to increase sooner and by more than envisaged.”"

"The RBNZ projects the OCR at 2.84% by end-2026, up from 2.38% previously, with further rises to 3.15% in 2027 and 3.28% in 2028. "

"Higher oil prices also lifted the inflation outlook, with CPI seen above 4% through 2026 before easing toward target during 2027."

"Front-end NZD OIS rates rose by 6-7bp, although the projected OCR path still sits below implied market predictions, with nearly 3.00% priced in for December 2026."

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