On Wednesday, the Reserve Bank of New Zealand (RBNZ) will announce its decision on monetary policy. A 25 bps rate hike is expected. Analysts at Wells Fargo see a 25 bps rate hike as opposed to a 50 bps hike considering the governor of the bank spoke about a cautious approach to tightening. 

Key Quotes: 

“We, along with the consensus, expect the central bank to raise rates another 25 bps to 1.00%. After the economy slumped in Q3 due to a COVID-related lockdown, incoming data show a solid rebound from Q4 last year, as reflected in employment and retail spending data. Meanwhile, inflation pressures have also intensified, as the Q4 headline CPI firmed to 5.9% year-over-year with an acceleration also in underlying inflation as well as non-tradables inflation.”

“Against this backdrop, we expect the RBNZ to continue its shift toward a less accommodative monetary policy stance at next week's policy meeting. At the same time, we favor a more measured 25 bps rate hike as opposed to a larger 50 bps increase, particularly after the central bank governor said late last year the RBNZ would take a “cautious” approach to tightening by moving in 25 bps increments “for now.”