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RBNZ set to hold at 2.25% as inflation expectations send mixed signals and hike bets build for 2026.Summary:RBNZ widely expected to hold OCR at 2.25% on February 18Inflation at 3.1%, above 1–3% target bandRate cuts since 2024 total 325bpHike expectations for end-2026 risingFutures price ~60% chance of hike by Q3 end2-yr inflation expectations ease to 2.4%1-yr expectations tick up to 2.6%The Reserve Bank of New Zealand is widely expected to leave its official cash rate unchanged at 2.25% at its February 18 meeting, with all 31 economists in a Reuters poll forecasting a hold. After aggressively cutting rates by a cumulative 325 basis points since August 2024 to counter recessionary pressures, policymakers now appear set to pause and assess how inflation and growth evolve.Inflation rose to 3.1% in the latest quarterly reading, moving just above the RBNZ’s 1–3% target band and marking its highest level in over a year. At the same time, the economy returned to growth in the third quarter following a prolonged contraction, reinforcing the case for a wait-and-see approach.While consensus sees no immediate move, the debate has shifted toward when tightening might resume. Around 45% of economists surveyed now expect at least one rate hike by the end of 2026, a notable increase from late last year. Futures markets are even more assertive, pricing roughly a 60% probability of a 25bp or larger hike by the end of the third quarter.Recent RBNZ inflation expectations data adds nuance to the outlook. One-year expectations edged up to 2.6% from 2.4%, while two-year expectations — closely watched by policymakers — eased to 2.4% from 2.6%. The moderation in the two-year measure may offer some reassurance that medium-term inflation pressures remain contained, even as short-term expectations firm.Some economists caution that talk of renewed tightening may be premature. While activity data has surprised to the upside, they argue the recovery remains tentative and that inflation pressures are not yet clearly demand-driven.The upcoming decision is therefore likely to emphasise optionality: holding steady for now, while keeping the door open to future tightening should inflation prove persistent.
This article was written by Eamonn Sheridan at investinglive.com.
💡 DMK Insight
RBNZ’s decision to hold rates at 2.25% is a pivotal moment for traders navigating mixed inflation signals. With inflation at 3.1%, above the target band, the market’s focus shifts to the rising expectations for rate hikes by 2026. The futures market pricing in a 60% chance of a hike by Q3 indicates that traders are starting to position themselves for a potential shift in monetary policy. This could lead to volatility in the NZD, especially if the RBNZ hints at future tightening. Keep an eye on how the NZD/USD reacts around key support and resistance levels, particularly if inflation data continues to surprise to the upside. A break above recent highs could signal a stronger bullish trend, while failure to maintain momentum could lead to a pullback. Here’s the thing: while the RBNZ is holding steady now, the shifting sentiment around future hikes could create opportunities for traders who can read the tea leaves of economic indicators. Monitor inflation reports closely, as they could drive market sentiment and influence the timing of any rate adjustments.
📮 Takeaway
Watch for inflation data and NZD/USD levels; a break above recent highs could signal bullish momentum as rate hike expectations grow.
