The Reserve Bank of New Zealand will decide on its key interest rate tonight or, more precisely, early Wednesday morning. The current policy rate level of 5.5% has been in place since last May and is the highest since 2008, Commerzbank’s FX analyst Volkmar Baur notes.

All eyes on RBNZ

“According to Bloomberg, nine out of 23 analysts surveyed expect the RBNZ to begin a rate cut cycle, while the market is pricing in a 60% chance of a 25 basis point cut tomorrow. And there are good reasons for that. Economic indicators such as the PMI have been rather weak of late. Consumer confidence has fallen sharply and the construction sector remains under pressure. However, a survey last week provided maybe the best reason.”

“It showed that inflation expectations for next year and 2026 have fallen, the latter even to 2.03%, back to the central bank's target. However, all this is countered by the labor market, which remains very robust, with wage growth still above 4%. This is also likely to be a key reason why inflation itself is still around 4% year over year, while the inflation momentum is not much lower. All in all, the RBNZ should err on the side of caution.”