RBNZ Hikes OCR to 2.50%, Signals Further Rises; NZD Jumps as Governor Breman Hints at Peak Inflation

• RBNZ hiked OCR 25 bp to 2.50%, first hike in 3 years.
• Further hikes expected; oil easing noted but medium-term inflation uncertain.
• NZD strengthened post-decision; Governor Breman hints inflation may have peaked.

The Reserve Bank of New Zealand (RBNZ) is widely anticipated to announce its latest monetary policy decision on Wednesday, July 8, with a majority of economists expecting a 25 basis point (bp) increase to the Official Cash Rate (OCR), bringing it to 2.50% from 2.25%. However, market conviction for a hike has softened, with odds slipping from over 80% a week ago to 60-70%, primarily due to a significant retreat in crude oil prices, now in the high USD60s per barrel from USD101 in May, which eases near-term inflation pressure. This has led to a “close call” scenario, with some banks, like ASB, forecasting a hold, and the NZIER shadow board showing a near-even split among members. Despite easing oil prices, persistent inflation and a soft New Zealand dollar are cited as reasons for continued tightening, with the RBNZ’s accompanying Monetary Policy Review and Governor’s statements crucial for signals on future policy. A hike is largely priced in, potentially leading to limited initial gains for the NZD, while a surprise hold could trigger a sharp dovish repricing and weigh heavily on the currency, which is currently trading around 0.5700 against the USD.