Outlook for Borrowers: Post July MPR
• The RBNZ increased the OCR by 25bp to 2.50% in a consensus decision, broadly in line with analyst expectations and almost fully priced by markets.
• The Bank retained a data-dependent tightening bias, signalling that further OCR increases are likely, although the timing remains uncertain.
• Market pricing for the RBNZ hiking cycle has largely converged with the Bank’s modelled OCR track from the May MPS.
• We expect a sequence of 25bp hikes at upcoming meetings. The OCR peak remains uncertain, but we think it will be above current market pricing.
• The retracement in 2- and 5-year fixed rates over the past month has created an opportunity to top up hedging, with rates likely to move gradually higher through the year.
Outlook for Borrowers: Post May MPS
The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged at 2.25% at Wednesday’s Monetary Policy Statement (MPS). While this outcome was widely expected by economists and broadly reflected in market pricing, the decision was finely balanced. The three external members of the six-member committee voted for a 25bp hike, with Governor Breman casting the deciding vote. The Bank also noted that “the OCR will most likely need to increase sooner and by more than envisaged in the February Monetary Policy Statement.”