A 25 basis point hike would keep the RBNZ in line with hawkish market pricing and guard against inflation expectations de-anchoring, even as the collapse in oil prices undercuts the case for tightening on headline inflation grounds alone. A hold instead risks triggering a sharp dovish repricing, given markets are already pricing a real prospect of no move at all. Should the RBNZ hike as expected, the initial reaction in the New Zealand dollar should be positive, though gains may not hold if markets conclude this is a one-off move rather than the start of further tightening. ING’s broader bullish call on NZD/USD into year end rests more on an expected lack of Fed hikes than on RBNZ policy itself, and the bank now holds less conviction in reaching its prior 0.59 fourth quarter target, preferring the Australian dollar for further upside.
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ING expects the RBNZ to deliver a 25bp insurance rate hike to 2.50% on Wednesday despite collapsing oil prices, though it warns the move could be a one-off and sees limited follow-through support for the New Zealand dollar.
Earlier:
Summary:
- ING expects the RBNZ to raise rates 25 basis points to 2.50% on Wednesday, describing it as an ECB-style insurance hike
- The bank still narrowly expects one further hike later in 2026, though it says the risk of the move being a one-off has increased materially
- The RBNZ’s May projections assumed Dubai crude near $95 to $105 a barrel for the rest of 2026, versus current levels near $65, making prior inflation forecasts look unrealistic
- Headline inflation is now expected to hit 3.9% in the second quarter before easing to around 3.0% by year end and 2.0% to 2.5% by mid-2027
- ING expects a 4-2 vote split among RBNZ policymakers, with either Governor Anna Breman or Karen Silk shifting to support a hike
- The bank does not expect the RBNZ’s guidance to validate current market pricing of rates reaching 2.75% by year end
Main article:
The Reserve Bank of New Zealand is expected to raise its cash rate by 25 basis points to 2.50% at its July 8 meeting, according to ING, in a move the bank likens to the European Central Bank’s recent insurance hike, even as a collapse in oil prices has made the decision far more finely balanced than it appeared just weeks ago.
ING said the RBNZ’s May projections, which pencilled in 50 to 75 basis points of further tightening by the end of 2026, were built on Dubai crude assumptions of $95 to $105 a barrel, a level that now looks far removed from prices near $65 a barrel. That shift makes previous forecasts for headline inflation above 4.0% through the fourth quarter look unrealistic, with ING now expecting a second quarter print of 3.9%, easing to around 3.0% by year end and 2.0% to 2.5% by the middle of next year.
Even so, ING argued a hold would carry its own risks. New Zealand entered the Iran conflict and the associated energy shock with an already accommodative real interest rate, and with unemployment stabilising and wage growth still above 3.5%, the bank sees a meaningful chance that second round inflationary effects are already under way. With markets pricing significant odds of a hike this week and further tightening by year end, a hold could trigger a sharp dovish repricing even if paired with hawkish signalling. ING expects a 4-2 vote in favour of a hike, with either Governor Anna Breman or fellow policymaker Karen Silk shifting from May’s hold decision, while Chief Economist Paul Conway continues to favour holding steady. The bank does not expect the RBNZ’s guidance to endorse market pricing of rates reaching 2.75% by year end.
For the New Zealand dollar, ING expects an initial positive reaction if the RBNZ hikes as anticipated, though it cautions markets may soon look to fade that move on concerns the hike will prove to be a one-off. The bank’s broader bullish view on NZD/USD into year end rests primarily on its expectation that the Federal Reserve will refrain from further hikes, a dynamic it expects to support pro-cyclical currencies generally and weigh on the US dollar. Even so, ING said it has lost some conviction that NZD/USD will reach its previous fourth quarter target of 0.59, and continues to see greater upside potential in the higher-carry Australian dollar.
