Post-October MPR
• The RBNZ unexpectedly held the OCR at 2.75%, with the Committee voting 4-3. The Bank maintained a clear tightening bias.
• BNZ expects a 25bp hike in December, with sequential increases taking the OCR to a 3.75% peak in May 2027.
• Shorter-dated NZ rates fell sharply after the decision. Markets imply an OCR near 3.90% by end-2027, down from about 4.0% beforehand.
• At around 4.0%, 2-year swaps sit about 20bp above our fair value estimate, so we see limited scope for a sustained rise. Use dips to top up cover.
• 5-year swaps are around 4.30%, only about 15bp above our forecast for early 2027 but well above the level implied by our expected OCR path.
• A sustained fall in 5-year rates would need lower oil prices or softer global growth and inflation. Until then, layering in cover and using target-level orders can help capture dips.
RBNZ Monetary Policy Review
The RBNZ left the Official Cash Rate at 2.75% at Wednesday's Monetary Policy Review (MPR), contrary to our expectations and the roughly 95% probability of a hike implied by market pricing ahead of the announcement. The decision was reached by a vote of 4-3. The four-member majority preferred to pause and assess the impact of the two recent hikes ahead of December, while three members favoured an immediate 25bp increase. The Bank maintained a clear tightening bias - all Committee members agreed that further OCR increases are likely, depending on how the outlook evolves.
Outlook for Borrowers: Post September MPS
• The RBNZ lifted the OCR by 25bp to 2.75%, as widely expected, and retained a data-dependent tightening bias.
• The modelled OCR track was little changed and implies another 25bp increase is likely before year-end.
• BNZ now expects the RBNZ to leave rates on hold at the October Review before resuming tightening in December.
• Market pricing implies an OCR near 3.0% by year-end, rising to around 3.6% by December 2027.
• Short-dated NZ rates are close to cycle highs, suggesting much of the expected tightening path is already priced. Look for dips to top up hedging.
• Long-end global yields have reached multi-decade highs reflecting higher expected policy rates and rising term premia.
• NZ 5-year rates have pushed above 4.0% and towards the top of their expected trading range, limiting the appeal of adding fixed-rate cover at current levels.