ANZ Bank now expects RBNZ to hike rates further

WELLINGTON: New Zealand’s central bank will resume hiking interest rates later this month because inflation is not yet under control, ANZ Bank economists say. The kiwi dollar jumped.The Reserve Bank of New Zealand (RBNZ) will raise the official cash rate (OCR) by a quarter percentage point to 5.75% in late February and repeat the dose in April, taking the benchmark to 6%, ANZ’s Auckland-based chief New Zealand economist Sharon Zollner predicted last Friday.

Previously, Zollner’s team expected no change until a rate cut in August.

ANZ is the first major bank to forecast another hike although other economists have acknowledged the risk that the RBNZ may need to do more to get inflation back into its 1% to 3% target band.

If the RBNZ resumes tightening, it is likely to be in stark contrast to global peers such as the US Federal Reserve, which is talking about cutting rates later this year.

New Zealand’s dollar climbed along with local bond yields after ANZ published its forecast.

The currency jumped 0.4% to 61.21 US cents, while two-year government yields surged 10 basis points to 4.94%.

Investors are now pricing a 45% chance of a rate hike at the RBNZ’s next policy meeting on Feb 28 and an 80% risk of one by May, swaps data showed.

“The RBNZ warned in November that if inflation pressures were to be stronger than anticipated, the OCR would likely need to increase further,” said Zollner.

“Data since then has been a series of small but pretty consistent surprises in that direction.”

A gauge of fourth-quarter underlying inflation was higher than policymakers expected, while data last week showed the labour market is stronger than most observers anticipated.

ANZ expects the RBNZ will hold the OCR at 6% until early 2025, in contrast to the consensus that the first rate cut will occur in the second half of 2024.

Investors have been reducing bets that the RBNZ could ease policy as early as May after chief economist Paul Conway said last month that policymakers had “some way to go” to get inflation back to target. — Bloomberg