ASB preview: Path of least resistance points to RBNZ 25bp hike

Financial markets have already priced in a 25 basis point hike almost completely, so ASB's preview indicates little room for a hawkish surprise from the decision itself. Market reaction will therefore depend more on the statement's tone and the published OCR track. According to ASB, that track will likely show at least one additional hike by year end and a peak near 3.3%, below current market expectations. If delivered as expected, this could cause a modest dovish repricing in the front end of the New Zealand curve and put pressure on the kiwi dollar. ASB also notes that the RBNZ is likely to point to tightening financial conditions, such as a higher trade-weighted index and increased swap rates, which argues against a particularly aggressive statement. Given two-sided risk on the medium-term inflation outlook, currency and rates markets will likely remain sensitive to incoming NZ data in the coming months, regardless of Wednesday's decision.

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• Poll shows 90% of economists expect RBNZ hike on September 2

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ASB believes the RBNZ will follow the path of least resistance with a widely expected hike on September 2, while noting two-sided risk on the eventual peak of the tightening cycle.

Key points:

• ASB anticipates that the RBNZ's six-member Monetary Policy Committee will unanimously agree on a 25bp OCR increase to 2.75% at 2pm on Wednesday, September 2.
• The move is supported by three factors: inflation above 3%, an OCR well below neutral, and a wish to avoid unnecessary market volatility.
• ASB expects the RBNZ to maintain a conditional tightening bias, emphasising that additional hikes are necessary to bring inflation back to 2% sustainably.
• Published RBNZ projections likely will show inflation falling under 3% by early 2027, converging to the 2% midpoint after that, along with a cyclical growth recovery.
• The OCR track is expected to indicate at least one further 25bp hike by year end, with a peak near 3.3%; ASB expects the RBNZ to downplay the track's significance due to its conditional nature.
• ASB's own forecast sees the OCR ending 2026 at 3.25%, with two-sided risk around that peak based on inflation developments.

According to an ASB preview, the Reserve Bank of New Zealand is broadly expected to raise the Official Cash Rate by 25 basis points to 2.75% when the Monetary Policy Committee announces its decision on Wednesday, September 2. ASB's economics team calls the decision fairly straightforward, noting that a full 25bp move is nearly fully priced by markets and likely to have consensus support from all six committee members.

ASB highlights three reasons for the hike. Headline and core inflation remain uncomfortably high for the RBNZ; the longer inflation stays above 3%, the greater the risk of a significant overshoot. Even after a hike, the OCR would still be well below neutral rate estimates, with the RBNZ's May estimate at around 3.5% compared to ASB's 3.25%. Additionally, the RBNZ's preference to avoid unnecessary economic instability supports delivering a move that markets and analysts broadly expect, rather than causing volatility by surprising.

Beyond the rate decision, ASB expects the RBNZ to keep a conditional tightening bias, confirming that more increases are needed to achieve 2% inflation sustainably, while emphasising that future moves will be data-dependent. ASB also expects the RBNZ to note a still-resilient global environment despite risks such as US-Iran tensions, freight disruptions, and tariff friction, and to highlight abundant slack in the labour market, which should ease medium-term inflation pressures even as it supports above-trend growth.

Regarding published forecasts, ASB expects the RBNZ to project annual inflation dropping below 3% by early 2027 and converging towards the 2% target midpoint, along with confirmation that a cyclical recovery will unfold through the rest of 2026. ASB also expects the RBNZ's OCR track to show at least one more 25bp hike by year end, with a peak near 3.3%, similar to the May projection and below current market pricing.

ASB's own baseline sees the RBNZ following the September 2 hike with additional 25bp moves in October and December, bringing the OCR to 3.25% by year end, a level it considers roughly neutral. The bank notes two-sided risk to this outlook: a slower tightening path and lower peak are possible if inflation pressures abate, but a higher peak would be required if inflation proves stickier than expected.