At the last RBNZ rate meeting, the asset purchases (LSAP programme) were unchanged, the interest rate kept at 0.25%, but the key signal was a forward rate forecast pointing to a 25bps rate hike in September 2022.

This resulted in some immediate upside in the NZD. Governor Orr took the view that some of the more extreme risks were off the table. However, there was a tentative note to his decision where he stated that the rate hike projection for September 2022 was highly conditional.

The reason for the caution?

Unsurprisingly it all revolves around the global response to COVID-19:

The global economic outlook has continued to improve, with ongoing fiscal and monetary stimulus underpinning the recovery. New Zealand’s commodity export prices have benefited from this rise in global demand. However, divergences in economic activity, both within and between countries, remain significant. The sustainability of the global economic recovery remains dependent on the containment of COVID-19.


The RBNZ expect inflation to be transitory due to higher commodity prices, higher oil prices, and pressure on shipping arrangements. The RBNZ expect these pressures to alleviate over the course of this year. So, no major concern there from the RBNZ around inflation.

Bank forecasts

Kiwibank forecast a rate hike in May next year for the RBNZ a few months earlier than the central bank’s forecast. The ASB bank sees a May 2022 rate hike too.ANZ see a rate hike next year too and a lift in rates to 1.25% by 2023.

Divergence between the RBA and the RBNZ

This does open up a central bank divergence between the RBA and the RBNZ. The RBA are on hold with their rates until 2024 and want to see unemployment move down to 4%. The RBNZ by contrast sees a rate hike in 2022. The bond yield spread has moved lower and this makes a sell on rallies the obvious trade as marked on the chart.