Outlook for Borrowers: Post July MPR
• The RBNZ left the cash rate unchanged at 5.5% at the July MPR which was unanimously expected by economists.
• However, the accompanying statement showed a distinct change in tone from May, and seemingly opens the way for a lower OCR in coming months.
• There was no discussion of a rate hike, and the Bank noted that restrictive monetary policy has ‘significantly reduced consumer price inflation’.
• We have updated our OCR forecast post-MPR and expect the easing cycle will begin in November. However, an earlier rate cut cannot be ruled out.
• The market is pricing the first 25bps rate cut by October, and close to 60bps of easing by November.
• The extent of RBNZ easing priced by the market could limit the near-term downside for 2 and 5-year fixed rates.
• Current levels are attractive to top up fixed rate exposure.
• Global central banks, including the RBNZ, are at the beginning of a synchronised easing cycle, which suggests lower fixed rates, over the medium term.
Outlook for Borrowers: Post May MPS
The RBNZ left the Official Cash Rate (OCR) steady at 5.5% at the May Monetary Policy Statement. However, the Bank upgraded its hawkish bias, referencing domestic inflation pressures, which have fallen more slowly than it had expected. The RBNZ raised its modelled cash rate track, which now peaks at 5.65% in December, implying a higher probability of a further rate hike, relative to the February Statement. As a result, the first projected rate cut has been pushed back to H2-2025. Although the Committee reached a consensus decision to leave rates on hold, a hike was discussed.