RBNZ may tighten again, but rate cuts now look much more likely – ING
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The Reserve Bank of New Zealand (RBNZ) shocked markets with a 50 bps hike. NZD/USD jumped more than 1.0% after the hike but then halved its gains. Economists at ING would be wary about chasing NZD rallies.
“The RBNZ surprised markets with a 50 bps rate hike. Despite the quite evident downside risks to the economic outlook, policymakers highlighted how ‘Inflation is still too high and persistent, and employment is beyond its maximum sustainable level’. Interestingly, the impact of recent severe weather events in parts of the country was also seen as primarily inflationary, and the Bank actually pointed to the rebuilding effort supporting demand.”
“While markets almost fully price in another 25 bps rate hike, this is not a given. There is a chance the RBNZ has front-loaded tightening but may struggle to push tightening further if inflation fails to stay high. That said, even in the event of another hike and the 5.50% projected peak rate being reached, we think the chances of rate cuts by the end of the year have now increased materially, and markets are likely underestimating them. This is why we would be wary about chasing NZD rallies, especially in the crosses.”
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