Thursday: RBNZ to hike sooner than expected | 28 May 2026

Nuggets

Thursday: RBNZ to hike sooner than expected | 28 May 2026 | 5 in 5 with ANZ · Nuggets

RBNZ Interest Rate Decision: The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady at 2.25% as expected, though the decision was a close call that split the rate-setting committee down the middle [00:00:46].
The Committee Split: The three external members of the committee voted to hike, the three internal members voted to hold, and Governor Adrian Orr used his casting vote to break the tie and maintain the hold [00:01:08].
Hawkish Policy Guidance: Sharon Zollner (ANZ New Zealand Chief Economist) highlighted that the committee's commentary revealed the OCR would have to rise sooner and by more than expected in February. The RBNZ's projected track indicates a high probability of rate hikes at the next three consecutive meetings: July, September, and October [00:00:57].
OCR Peak Forecast: The RBNZ track priced in an additional 28 basis points, pointing to a projected peak OCR of 3.28% spread out over a couple of years, though this longer-term track carries less certainty [00:01:26].
Internal Debate & Rationale:
- The Hike Proponents: Argued that starting from a low official cash rate, it is critical to get ahead of the game to prevent inflation from becoming broad-based and deeply embedded, avoiding a situation where the bank is forced to chase its own tail [00:02:23].
- The Hold Proponents: Countered that it is early days, the domestic economy is weak, and this economic weakness may be sufficient to keep the medium-term inflation outlook in check [00:02:44].
Government Budget & Fiscal Outlook: Market attention turns to the New Zealand government budget out today. ANZ Senior Economist Miles Workman expects the Treasury to downgrade its economic forecasts, leading to a lower tax take and higher non-discretionary spending [00:02:57].
Sovereign Bond Issuance: ANZ anticipates a cumulative lift in New Zealand Debt Management's bond issuance guidance between $5 billion and $15 billion through June 2030, depending heavily on the exact scale of the Treasury's growth downgrades [00:03:09].

Market Resilience & Beta Transmission: ANZ Senior Rate Strategist Jennifer Kusuma noted that global market volatility has not disrupted Asian local currency sovereign debt uniformly. While long-dated 10-year Asian bonds participated in the global long-dated bond sell-off observed since May 8, their sensitivity (beta) to surging US Treasury yields remained low or less than one [00:05:09].
Yield Comparison Case Study: Between May 8 and May 28, 10-year US Treasury yields rose by 15 basis points. In that exact window, Chinese and Singapore government bond yields ticked lower; Malaysian and Indian 10-year bonds demonstrated a low beta of 0.3; and Indonesian yields moved with a beta of 0.5. High-volatility exceptions were confined to the Philippines, South Korea, and Thailand [00:05:38].
Fiscal Prudence Backstops: This structural resilience reflects a lack of imminent sovereign supply worries, as regional governments remained cautious about expanding borrowing after exiting the pandemic with elevated debt. While the Middle East conflict has raised fiscal slippage risks via fuel subsidy programs (India, Indonesia, Malaysia, Thailand) and general stimulus programs (South Korea), clear mitigants are protecting balance sheets [00:06:05]:
- South Korea: Supported by expanding revenue collections from a strong semiconductor export cycle [00:06:35].
- Malaysia & India: Backed by corporate dividend payments [00:06:40].
- Indonesia & the Philippines: Utilizing targeted spending reallocations to maintain strict budget deficit targets [00:06:43].
Institutional Frameworks: Prudent fiscal consolidation remains on track for the next 3 to 5 years in Malaysia, India, and the Philippines. Furthermore, structural legislative limits—such as debt ceilings in Thailand and Malaysia, and budget deficit caps in Indonesia—are strictly respected outside of major crises [00:06:57].
Inflation Premiums & Valuations: The correction higher in 10-year yields since late 2025 has sharply improved valuations for long-dated bonds in the Philippines, South Korea, India, and Thailand, where yields are priced with significant inflation risk premiums. Rising inflation has emerged as the principal market anxiety since the Middle East crisis escalated, evidenced by short-dated yield spikes since March and elevated April inflation prints across Thailand, the Philippines, Vietnam, and South Korea [00:07:18].
Regional Central Bank Tightening: ANZ projects that interest rate hikes are set to become prevalent across Asia to counter these upside inflation risks [00:08:01]:
- Bank Indonesia: Surprised the market by executing a 50 basis point hike (vs. expectations of 25 bps) [00:08:11].
- Bank of Korea: ANZ sees a strengthening case for an earlier tightening move, forecasting a looming 25 basis point hike [00:08:21].
- Selective Tightening Cycles: Ongoing tightening pressures are expected in the Philippines, India, Thailand, and Vietnam [00:08:30].
Growth Buffer: A powerful semiconductor export cycle is providing a critical growth buffer, allowing central banks in South Korea, Taiwan, and Singapore to focus squarely on upside inflation risks, as evidenced by resilient, upside-surprising Q1 2026 GDP growth data [00:08:38].

Thursday: RBNZ to hike sooner than expected | 28 May 2026 | 5 in 5 with ANZ

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Thursday: RBNZ to hike sooner than expected | 28 May 2026 | 5 in 5 with ANZ

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1. New Zealand Monetary Policy & Macroeconomic Outlook

2. Global Markets & Commodity Benchmarks

3. Australian Inflation Dynamics

4. Deep Dive: Asian Local Currency Bond Markets & Inflation Risks

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