MNI INTERVIEW: RBNZ Sees Short-Term Hike Highly Unlikely

Risks to the Reserve Bank of New Zealand’s 2.25% Official Cash Rate remain balanced, with policy likely to stay on hold for the foreseeable future and a hike in the near term highly unlikely, Chief Economist Paul Conway told MNI, emphasising that the RBNZ retains full flexibility to adjust rates in either direction depending on economic developments.

Pointing to rising yields and the market’s slightly hawkish interpretation of Thursday’s 25-basis-point OCR cut and Monetary Policy Statement, Conway said the Monetary Policy Committee will adjust rates and the forward track accordingly. (See MNI RBNZ WATCH: Easing Bias Maintained, But 2026 Hold Likely)

“Our rate track is pretty flat. We get to 2.2% early next year, and if rates change over the next few months, it’s probably going to be down,” he said, reiterating comments by Acting Governor Christian Hawkesby at Wednesday's press conference. “But if rates don’t change over the next few months and move over the medium term – nine months to 18 months – it’s probably going to be up." However, he said a hike in the short term was highly unlikely, noting "our best projection is consistent with a hold.”

The Bank’s forecasts show the OCR at 2.2% through 2026, rising slightly in December before reaching 2.7% by December 2027. Conway said the RBNZ is comfortable looking through the recent 3% CPI read, expecting inflation to return to around 2% by mid-2026 as spare capacity persists. “Out the other side of that, we’re predicting an upswing in the business cycle,” he said.

Markets have priced in a 34% chance of a hike at the July 8 meeting and a 2.429% OCR by October 2026.

ECONOMIC RECOVERY

Conway said the 0.9% q/q GDP contraction in Q2, which drove the past 75 basis points of easing over the last two meetings, is likely to be revised somewhat stronger. He noted that some of the weakness reflected short-term supply-side disruptions, including high electricity prices which squeezed manufacturers, energy access issues, and unfavourable agricultural weather conditions, alongside slower medium-term population and productivity growth.

“Monetary policy has very little impact on a lot of that supply-side weakness, but we clearly have spare capacity in the economy, which is why we’re confident inflation will come down,” he said.

Conway added that New Zealand underperformed peer economies in Q2 partly because it lacked exposure to the global artificial intelligence investment boom that has supported growth elsewhere through semiconductor and technology exports." We wore the full force of [trade uncertainty and tariffs], whereas it was kind of mitigated and muted in some other parts of the world because of that investment boom into AI and the way it spilled over into exports," he said. “We expect to see growth going forward, we expect to see that output gap close. The potential output in the economy is pretty soft at the moment, about 1.1-1.5%, but we think the economy can grow more quickly than that in the short term as we eat away into that output gap and increase that speed limit more in the medium to longer term.”

NEW GOVERNOR

Conway stressed that the appointment of RBNZ’s new governor, former Riksbank First Deputy Governor Anna Breman who starts on Monday, did not affect the outcome of Thursday's decision.  

“If we were in the middle of a hiking or easing cycle, we would still be doing it. It’s somewhat serendipitous that Anna is arriving, as the committee feels the bulk of easing is done and we’re entering a watch-and-wait phase. It’s a good spot to be going into summer.”