RBNZ Review: Hawkish Split

The RBNZ kept rates unchanged at 2.25% in the May meeting but on a hawkish 4-3 vote. Governor Breman broke the tie to keep rates at 2.25%. The OCR path is revised significantly higher from February forecast, around 2 hikes higher by year end 2026. They still see inflation returning to target range in mid 2027 but expecting above 4% in 2026. 

Some key takeaways:

Energy Shock Uncertainty: The uncertainty in Middle East remains and could extend beyond their baseline scenario of easing in June. It has led to inflation forecast for 2026 to be above 4%. If higher oil prices are here for longer, the RBNZ projected CPI could go as high as 5.8% y/y. 

Hawkish Tilt: Three members of the RBNZ committee voted to hike rates by 25bps, citing energy shock could translate into more broad based inflationary pressure soon and the NZ's fiscal condition would still remain accommodative. Three members also voted to hold, emphasizing that "core inflation and wage growth remain contained and medium- and long-term inflation expectations remain around 2 percent." They argued that the current uncertainty would already curb secondary inflation effect. But all members agreed that increasing the OCR is necessary in coming meetings to keep inflation in check.