RBNZ Preview: Forecasts from three major banks

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, February 22 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of three major banks.

RBNZ is expected to raise the key Official Cash Rate (OCR) by 50 basis points from 4.25% to 4.75%. The recent floods will certainly complicate the RBNZ’s job.

Read: RBNZ preview: 50 bps seems appropriate

Westpac

“We expect the RBNZ to lift the OCR by 50 bps to 4.75%. While still a large increase, it’s less than the 75 bps move that the RBNZ seemed to have in mind at its November Monetary Policy Statement. Inflation pressures have remained strong, but not quite to the degree that the RBNZ was bracing for. We expect the OCR to rise further to a peak of 5.25% this year. Borrowers will continue to roll onto higher interest rates for some time to come, even if the OCR is reduced over 2024 as we’re forecasting.”

TDS

“We expect the RBNZ to hike the OCR by 50 bps to 4.75%. After a historic 75 bps hike at the November meeting, the subsequent inflation and labour market outcomes undershooting RBNZ forecasts support a return to RBNZ hiking in 50 bps clips. The downshift would also be consistent with global central banks stepping down the pace of hikes. New economic projections will accompany the Board’s decision with most focus on whether the Bank retains a 5.5% OCR peak by May. We don’t think the RBNZ will do many favors for NZD at its February meeting, especially as market pricing looks a bit aggressive.”

Citibank

“Last week the NZ Government declared a nationwide state of emergency for the third time in the country’s history, this time due to Cyclone Gabrielle. The cyclone comes at a time when inflation pressures are acute and against that backdrop, the RBNZ is still likely to increase the OCR but will need to communicate carefully accompanying policy rhetoric. The RBNZ unexpectedly cut the OCR by 50 bps to 2.50% following the Christchurch earthquake rather than keep it steady. Precedent in responding to a natural disaster with a change in policy would suggest that the RBNZ now possibly keep OCR unchanged on February 23 rather than increase it as expected by the market and previously communicated by the RBNZ. The MPC may discuss such an outcome, but in the end, the need to stop the economy overheating will likely force a decision to increase the OCR by 50 bps to 4.75%.”