📝Expectations For Feb. RBNZ Likely to Rise Back to 4.75%: ANZ

If market pricing is similar going into the decision to where it is now, there is clearly going to be some sensitivity to the policy decision itself – ie whether the RBNZ goes for 50bp, 75bp, or as some fear, 100bp. That’s because at the moment, market expectations for the November meeting itself sit at 63bps (ie. 4.13%), which is almost exactly halfway between 50 and 75bps.

It seems unlikely the market will seriously back a 50bp hike. While there is genuine uncertainty about the lagged impacts of actions taken thus far, the starting point is just too far out of whack with what was envisaged in August and October.

Assuming we get +75bp next week, expectations for February are likely to gravitate back up to at least 4.75%, especially if the MPC signal that they’re prepared to continue tightening at pace.

Further out the curve, we think the long end will ultimately reward a hawkish tone, but that could take a while to play out. While the initial reaction might see bond yields jump (on higher funding costs), the best thing bond investors can hope for is that the RBNZ stays on the front foot. FX markets are likely to react in the same broad direction as short-end rates – ie the Kiwi is more likely to rise on a 75bp/hawkish decision, but has scope to come off on either a 50bp hike or a less resolute tone.