UBS anticipates the Reserve Bank will raise the Official Cash Rate in July, potentially with all committee members in agreement, after a tied vote forced Governor Anna Breman to use her casting vote to keep rates on hold in May.
The Monetary Policy Committee split 3-3 in May on whether to raise the 2.25% OCR. Breman, Karen Silk and Paul Conway voted to hold, while external members Carl Hansen, Hayley Gourley and Prasanna Gai backed a 25-basis point rise.
UBS economist Stephen Wu said unified decisions have grown less common in the past three years, with only four meetings producing split outcomes. In the three previous instances where committee members disagreed on the direction of interest rates, the next meeting produced a unanimous result that supported what the minority had wanted.
Wu said the time between the July and September meetings is 2 months, longer than typical. "In our view, such a long gap heightens the risk of holding in July, if inflation expectations become de-anchored," he said. "Instead, if a hike is delivered in July, the RBNZ can become more data dependent for subsequent hikes."
Annual inflation came in at 3.1% in the March quarter, with economists expecting it to exceed 4% in June. Wu said the average year-on-year inflation rate over the previous five years was approximately 4.5%, which he said represents the most sustained high inflation since the adoption of inflation targeting frameworks by central banks in the early 1990s. The Reserve Bank's target band is 1% to 3%.
Westpac economists reaffirmed their view that rates will hold at 2.25% in July, with tightening to begin in September followed by one further increase in December. Westpac anticipates headline inflation will reach a peak of 4.0% in the June quarter and end 2026 at 3.5%, down from a prior projection of 4.5% at the peak.
Westpac forecasts economic growth of 2.0% over 2026, up from 1.5% previously but well below the 3.3% it forecast before the Iran conflict.