By Devayani Sathyan
BENGALURU (Reuters) – The Reserve Bank of New Zealand will hike interest rates by a final quarter point on Wednesday then end its most aggressive tightening cycle since adopting the cash rate in 1999, according to a Reuters poll which then showed a pause until year-end.
After surprising financial markets with a 50 basis point (bps) hike to 5.25% in April, the central bank is now under pressure to moderate its tightening pace as the economy teeters on the verge of a recession.
Although the RBNZ was among the first major global central banks to tighten monetary policy, and price pressures have eased somewhat, inflation in the first quarter was still running at 6.7%, more than three times the RBNZ’s 2.0% target rate.
Over 80% of economists, 21 of 25, polled on May 15-18, expected the RBNZ to raise its official cash rate by 25 bps to 5.50% at its May 24 meeting, on par with the central bank’s projected peak rate.
The remaining four expected no change in the survey, conducted before the budget.
“We still think there’s a little bit more work the Reserve Bank needs to do to continue to push inflation back down into a more manageable range and the range that it is targeting,” said Brad Olsen, principal economist at Infometrics.
“Although a lot of heavy lifting has been done by the Reserve Bank, the pressures still around the economy are worrying and the bank will want to continue to move.”
The largest banks in the country – ANZ, ASB, Bank of New Zealand, Kiwi Bank and Westpac – expected a 25 bps hike next week.
Among economists who had a long-term view, 14 of 21 forecast rates to stay at 5.50% next quarter. Of the others, four saw rates at 5.75% or higher and three at 5.25%.
Median forecasts showed rates at 5.50% until end-2023 but nearly 30% of respondents predicted at least one 25 bps cut by then.
Inflation was not expected to fall within the RBNZ’s target range of 1-3% until the second half of 2024, a separate Reuters poll showed.
“Once the Bank is confident it has broken the back of inflation, we believe it will cut rates at breakneck speed,” noted Abhijit Surya, Australia and New Zealand economist at Capital Economics.
“We expect the RBNZ to change gears and start easing policy as soon as Q4 of this year.”
(Reporting by Devayani Sathyan; Polling by Sujith Pai; Editing by Hari Kishan and Kim Coghill)