New Zealand Dollar: RBNZ cautious tightening path – UOB

UOB’s Lee Sue Ann notes that the Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) to 2.75% and kept a tightening bias, stressing the need to prevent fuel-driven inflation from becoming entrenched. She expects policymakers to stay data-dependent into the October Monetary Policy Statement (MPS) and forecasts the OCR to remain at 2.75% over the current forecast horizon.

RBNZ hike supports cautious NZD outlook

"The Reserve Bank of New Zealand (RBNZ) raised its official cash rate (OCR) by 25bps to 2.75%, as expected. The Committee judged that further removal of monetary stimulus was necessary to guard against the risk that the recent fuel-driven inflation shock becomes embedded in broader price-setting behaviour and inflation expectations."

"The RBNZ retained a tightening bias and signalled that further rate hikes remain possible. Policymakers indicated that the OCR may need to increase further under the central outlook, arguing that gradual tightening now would reduce the risk of having to raise rates more aggressively later."

"We expect policymakers to remain data-dependent ahead of the next MPS on 28 Oct. Key releases before then include 2Q26 GDP (17 Sep) and 3Q26 CPI (22 Oct), which should provide greater clarity on the balance between inflation persistence and the strength of domestic economic activity."

"We therefore maintain our forecast for the OCR to remain at 2.75% over the forecast horizon for now. However, we will reassess and update our policy view should the balance of growth and inflation risks shift materially."