RBNZ could decide 50 bps rate hike next week

The Reserve Bank of New Zealand will have its monetary policy meeting next week. According to analysts at Wells Fargo, high inflation and a hawkish central bank outlook sets the scene for another 50 bps hike in May to 2.00%. They expect the rate to end the year at 3.00%.

the backdrop of elevated inflation is cited as a justifying factor this time, as the RBNZ surprised markets with a 50 bps rate hike in April. The central bank expects CPI to peak around 7% in the first half of this year, although it believes the risk of persistent and high inflation expectations have increased.

Notably, the RBNZ has asserted that the “path of least regret” is moving to a neutral policy rate sooner, which should reduce the risks of rising inflation expectations and provide more policy flexibility amid an uncertain global economic environment.”

High inflation and a hawkish RBNZ sets the stage for another 50 bps hike in May, which would bring the Official Cash Rate to 2.00%. We then expect additional 25 bps rate hikes in July, August, October, and November, which would bring the OCR to 3.00% at the end of 2022.