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New Zealand Central Bank Expected to Hike Cash Rate by 25 Basis Points Next Week, ANZ Says

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The Reserve Bank of New Zealand (RBNZ) is likely to focus on risk management given current uncertainty, which should push it to raise the official cash rate by 25 basis points to 2.5% at a policy meeting next week, ANZ said in a Wednesday report.

The official rate is still 75 basis points below the central bank's estimate of neutral, the New Zealand dollar is much softer than assumed, and inflation is poised to be above target for a while, which makes it "sensible to get a hike under the belt" despite a decline in oil prices, ANZ said.

The RBNZ's plausible options include a hawkish hold and a neutral-to-dovish hike, but the latter would leave the monetary policy committee in a more comfortable position as New Zealand is likely to see very mixed data in coming weeks, ANZ said.

"To our mind, an OCR of 2.25% is too low to balance the risks around medium-term inflation," the bank said, adding that current market odds indicate a roughly 75% chance of a 25 basis point hike next week.

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