Reserve Bank of New Zealand: October rate hike now seen – TD Securities

TD Securities’ Prashant Newnaha now expects the Reserve Bank of New Zealand to raise the Official Cash Rate by 25bps to 3% at the October meeting, having previously forecast a pause. He still projects additional 25bps moves in December and February, lifting the terminal rate to 3.50%, as weaker NZD and higher Dubai Oil pose upside inflation risks.

Terminal rate lifted 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.)