RBNZ to hike next week as inflation risks mount

The RBNZ is likely to deliver a 25bp hike on 28 October and signal that its tightening cycle could be longer and faster than previously projected.

• Third-quarter inflation eased from 4.1% to 3.7%, while non-tradable CPI fell to 3.3%, below the RBNZ’s estimates of 3.9% and 3.6% respectively.
• Oil prices have risen around 20% since the September meeting, increasing the risk that fourth-quarter inflation exceeds the RBNZ’s 3.9% forecast and remains sticky.
• The trade-weighted NZD fell 4% in September to its lowest level since 2009, raising imported-inflation risks despite the RBNZ’s usual reluctance to react directly to currency moves.
• Second-quarter GDP grew 2.6% year on year, above the RBNZ’s 2.1% estimate, while activity surveys point to growth of around 2.0% in both the third and fourth quarters.
• US two-year swap rates rose around 35bp since early September and New Zealand two-year swaps increased 33bp; markets now price 21bp for the October meeting and around 75bp of tightening by the end of the first quarter of 2027.

Takeaway: ING expects another hike in December or February and a terminal rate of 3.25-3.5%; a hawkish RBNZ could support the NZD, although further NZD/USD gains will depend increasingly on global and US developments.