RBNZ to hold rates at 3.25% on July 9 but cut once more this year: Reuters poll

A Reuters poll indicates a majority of economists expect the Reserve Bank of New Zealand (RBNZ) to hold its official cash rate at 3.25% on July 9. This decision is driven by mixed economic data, inflation easing to 2.5% within the RBNZ's 1%-3% target range, and increased uncertainty regarding medium-term price pressures despite the economy emerging from recession. The median forecast now projects only one more 25 basis point rate cut this year, a reduction from two anticipated in May, with rates ending the year at 3.00%.

Analysis

The Reserve Bank of New Zealand (RBNZ) is broadly expected to maintain its official cash rate at 3.25% at its upcoming July 9 meeting, reflecting a cautious stance amidst mixed economic signals. This expected pause follows a significant 225 basis point easing cycle and is supported by the economy's emergence from recession with 0.8% growth in the first quarter. While inflation has moderated to 2.5%, falling within the RBNZ's 1-3% target range, uncertainty regarding medium-term price pressures necessitates a 'wait-and-see' approach, with all major New Zealand banks forecasting a hold. The most significant insight from the latest Reuters poll is the hawkish shift in forward expectations; the median forecast now anticipates only one additional 25 basis point cut this year, a reduction from the two cuts projected in May. This adjustment has pushed the consensus year-end rate forecast to 3.00% from 2.75%, signaling that the market is pricing in a more measured easing path contingent on upcoming data, particularly the Q2 inflation figures due on July 21.

Key Decisions for Investors

• Given the hawkish repricing of the RBNZ's policy path from two expected rate cuts to just one this year, investors should anticipate potential near-term support for the New Zealand Dollar.
• Holders of New Zealand fixed income securities should re-evaluate duration risk, as the revised median year-end cash rate forecast of 3.00% limits the scope for further capital appreciation from falling yields.
• The upcoming July 21 inflation report is a critical catalyst that could alter the central bank's policy trajectory, so it is prudent to monitor positions in rates-sensitive assets for increased volatility around this release.