Reserve Bank of New Zealand now expected to raise rates in October – TD Securities

A 25bps increase in the Official Cash Rate to 3% is now TD Securities’ Prashant Newnaha’s forecast for the Reserve Bank of New Zealand’s October meeting, replacing his earlier expectation of a pause. With a weaker NZD and higher Dubai Oil prices presenting upside risks to inflation, he continues to expect further 25bps increases in December and February, taking the terminal rate to 3.50%.

Terminal rate forecast rises to 3.50%

"We had forecast the RBNZ to pause at its October meeting. We now forecast the Bank to hike the Official Cash Rate 25bps at this week's meeting to 3%."

"Dubai crude accelerated from the end of September. It rose 9% in USD terms from end of Q3 to Paul Conway's interview on 15 October and rose another 5.5% in the last week and a half. Dubai oil is tracking well above the Bank's Q4 average oil price around US$84."

“He discussed the optionality the Bank has to hike the OCR at its October meeting even though the OCR track from the Bank's September meeting did not present an October hike as its central forecast.”

"The NZ TWI dropped sharply from the end of Q3 and is currently 3.6% below the Bank's Q4 forecast. Regardless of the reasons for the sharp drop, the Bank will likely view the weaker NZD as positive for growth, posing upside risks to inflation."

"Nonetheless, we stick to our call for 25bps hikes in December and February. Accordingly, this pushes our terminal rate from 3.25% to 3.50%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)