ING said the Reserve Bank of New Zealand’s November 2025 projections underestimated inflation after new CPI data came in above its forecasts. Fourth‑quarter CPI was 3.1% year on year versus the RBNZ’s 2.7% estimate, while non‑tradable CPI was 3.5% versus 3.2%.
ING expects the RBNZ to leave rates unchanged at its February meeting. The focus will be on the bank’s guidance and updated projections. The November track pointed to a first rate rise in 2Q27, based on headline inflation falling to 2.2% in the second half of 2026.
Inflation Proving More Persistent
ING estimates inflation will not drop below 2.4% at any point this year. It expects a first‑quarter reading of about 2.7% to 2.8%. That compares with the RBNZ’s 2.3% estimate for 1Q.
ING forecasts two rate rises in 2026, taking the policy rate to 2.75%, starting in September or October. It also expects one more rise in 2027 to bring the rate back to a neutral level of 3.0%.
The Reserve Bank of New Zealand’s November 2025 projections now look too optimistic about how fast inflation would cool. Fourth‑quarter inflation was stronger than expected. This raises doubts about whether last year’s sharp rate cuts went too far. Sticky inflation also weakens the view that the easing cycle was timed perfectly.
Recent data also points to a stronger economy than expected. The January jobs report showed unemployment falling to 3.8%. The latest Quarterly Employment Survey showed private‑sector wage growth is still solid. Together, these figures suggest price pressures are easing more slowly than the RBNZ expected in 2025.
Market Pricing And Policy Outlook
We do not expect a rate change at this month’s meeting. Instead, markets will focus on the RBNZ’s new projections and what they imply for future policy. With inflation staying high, the old plan for a first rate hike in mid‑2027 looks too late. Investors will look for signs the RBNZ may move this timeline forward.
We expect inflation to remain sticky and stay above 2.4% all year. That is well above the RBNZ’s earlier forecasts. If inflation stays this firm, the central bank may need to respond. We expect two hikes in 2026, lifting the policy rate to 2.75%, likely starting in September or October. That would mean part of the 2025 easing cycle gets reversed.
For derivative traders, the market may still be pricing in too little tightening from the RBNZ. Overnight index swaps are not fully pricing two hikes in 2026. That could create opportunities to position for higher short‑term rates. A sharp repricing may happen once the RBNZ updates its guidance in the coming weeks.
Further out, we think the tightening cycle may continue. We expect another hike in 2027, bringing the policy rate back to a neutral 3.0%. The return to price stability may take longer, and it may require higher rates, than markets expected only a few months ago.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
