PREVIEW: RBNZ Announcement due Wednesday, 8th July at 03:00BST/22:00EDT

• RBNZ is expected to hike the OCR by 25bps to 2.5%, with markets pricing an 80% probability.
• However, lower energy prices following the US-Iran MoU and the absence of Q2 inflation data could keep the hawkish members at bay.
• Policy decision is expected at 03:00BST/14:00NZT, with Governor Breman to hold a press conference at 04:00BST/15:00NZT.

OVERVIEW: The overall market consensus is for the OCR to rise to 2.50% from 2.25%, however, there are contrasting views. Westpac expects the RBNZ to remain on hold while maintaining its tightening bias, while analysts at ANZ are in line with the market consensus, anticipating a 25bp hike. Market pricing supports ANZ's view, indicating an 80% chance of a 25bp hike, however the NZIER Shadow Board backs Westpac's view, recommending a hold.

MAY’S HAWKISH HOLD: Despite leaving rates on hold for a third consecutive meeting, the minutes from the meeting revealed a split vote, with Governor Breman having the casting vote. Additionally, the minutes stated that all MPC members agreed that further rate hikes would likely be necessary. This was shown in the upward revision to the Bank’s OCR projections; forecasting the OCR at 2.51% in September 2026 from the prior forecast of 2.28%. In the post-policy press conference, Breman reiterated that OCR increases are likely at coming meetings, but it depends on the data.

LOWER ENERGY AND MORE DATA COULD KEEP HAWKS IN CHECK: Since the May meeting, energy prices have sharply declined with Brent cash falling around USD 25/bbl. Prices have even fallen below the RBNZ’s May projections. This may well significantly alter the inflation outlook for the Bank. The MPC projected Q2 inflation of 4.2%, peak at 4.3% in Q3 and finishing the year at 4.1%. However, analysts at Westpac see inflation topping at 4% in Q2 and falling to 3.5% by year-end, taking into account lower energy prices. Additionally, the hawks on the Board highlighted the risk of higher fuel costs passing through into inflation. This risk is now lower, given energy price movements. On the data front, Q2 inflation is to be released after the policy announcement, alongside business surveys, labour market data and key measures of inflation expectations. Overall, recent energy moves and the heavy data docket in the near-term could keep the hawks in check for the time being.

NZIER RECOMMENDS HOLD BUT DECISION IS CLOSE: The NZIER published their view on Monday, recommending the RBNZ keep the OCR unchanged at 2.25%, however the decision could go either way. Rising inflation was a key reason given by the Shadow Board members who want the OCR moved back towards neutral. However, there was a consensus amongst the Board that the OCR should rise over the coming year, topping around 3.00-3.25% in a year's time, which is similar to the RBNZ's view of 3.11% in September 2027, according to the May statement.

ANNOUNCEMENT: The policy decision is expected to be published at 03:00BST/14:00NZT, with Governor Breman to hold a press conference at 04:00BST/15:00NZT. The announcement does not include updated forecasts. Focus will be on to what degree the Bank's view has changed since the US-Iran MoU, and then to any forward guidance.