“Early Stages”: The RBNZ Delivered What Was Needed To Quell Markets, Whilst Remaining Vigilant

• The RBNZ kept the cash rate on hold at 2.25%. And the messaging was crystal clear. Let the economy recovery. Keep settings accommodative. And if all goes well look to rate hikes at the end of this year, or early next. It’s a big if. But overall, it’s a message that we can get behind.
• The Kiwi economic recovery is in the “early stages”. There’s a lot left to do. There’s a lot of time that’s needed to heal. And there’s a lot market participants can do to ease the pressure. Wholesale rates are lower and the currency unmoved. That’s exactly the reaction we were hoping for. And the RBNZ will be happy with that (let’s forget about the last MPS in Nov which was a shambles).
• Inflation will fall back to 2%. It remains their forecast, and ours.
• Ultimately, though we still think that the kiwi economy will need a little more time to be fully mended. And as such retain our view of rate hikes kicking off in 2027.

Don’t you just love fresh beginnings? Meeting for the first time in 2026, the RBNZ felt like a whole new central bank today. New leadership can do that. As expected, the cash rate was left unchanged at 2.25% under a unanimous decision. New Governor, Anna Breman, made her mark with an exceptionally simple, well delivered, statement and OCR track. Something which in the past, as recently as November, has not been well executed.

The RBNZ confirmed time on the easing cycle with a lifting of the OCR track. The next move in monetary policy is up. And the timing of that move has been brought forward. Now ending the year at 2.38%, the OCR track implies a good chance of the first hike happening at the end of this year. However, as Governor Breman herself said in the press conference, such a move is not entirely priced in their own view either. And for us we’re still on the side that rate hikes are an early 2027 story.

In our view there are a few key lines that sum everything up nicely.

• “The economy is at an early stage in its recovery.” Talk of imminent rate hikes are premature. It’s simply too soon to call for hikes with much weighting. That said, if all goes according to plan, the RBNZ sees a “possibility of a rate hike by year end… but it’s not fully priced” or expected by the MPC. So cool your jets, and wait for the recovery.
• The outlook for global growth, and our trading partner growth, is “highly uncertain” with “weak domestic demand in China”.
• The Committee is confident that inflation will fall to the 2 percent midpoint over the next 12 months due to spare capacity in the economy, modest wage growth, and core inflation within the target band.” Our sentiments exactly.

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