Insights 
VT 
BNZ initially anticipated a 25 basis point cut at the Reserve Bank of New Zealand’s meeting on July 9. However, they have revised their forecast, now expecting the RBNZ to maintain current rates.
The likelihood of a rate cut has diminished, with market pricing indicating a 75% probability for the RBNZ to hold rates steady. BNZ decided against altering their prediction until after reviewing the NZIER Quarterly Survey of Business Opinion.
Business Sentiment and Indicators
The shift in BNZ’s forecast follows a re-evaluation of recent business sentiment data and forward-looking indicators. The Quarterly Survey of Business Opinion (QSBO) showed no pressing signs of economic contraction, nor enough deterioration in sentiment to compel near-term rate relief. Domestic inflationary pressure, while gradually cooling, remains above the Reserve Bank’s comfort zone. The central bank has consistently signalled patience rather than urgency, preferring a longer wait to ensure inflation returns sustainably to its target band.
Recent data also shows that consumer confidence has stabilised, albeit at low levels. Labour market conditions, although softening marginally, are yet to flash clear recessionary signals. Wage growth has pulled back slightly, but remains elevated compared to the decade prior to the pandemic. These elements together suggest that the RBNZ will resist easing in July unless there is an unexpected downturn or acute volatility in housing or retail.
Market-implied pricing reflects this sentiment. The overnight index swap curve now leans heavily towards a hold in July, with pricing pushing expectations for a cut later in the year. The forward market implies a base case of stability in July, with some probability leaning towards cuts between October and November.
Hawkesby’s recent remarks during public appearances have been carefully worded, steering clear of giving fixed guidance. Instead, they have relied on the argument that inflation expectations need to be consistently anchored. From what we’ve observed, the RBNZ wants to signal that progress against inflation is being made, but that it’s slow work best achieved through steady tactics rather than reactive shifts.
Impact of Robertson’s Fiscal Plans
Robertson’s fiscal plans are also playing into the RBNZ’s thinking. The latest budget avoided any material fiscal loosening, which should help monetary policy do its job without extra demand pressure. Treasury forecasts did not spark any fears of renewed spending booms or unexpected revenue shortfalls, further tilting the balance toward steady policy.
For those of us watching interest rate forwards, the pricing on three-month bank bills over swaps (BKBM-OIS spreads) is a useful gauge. These have remained relatively stable, suggesting limited stress in funding markets and no immediate squeeze that would prompt rate adjustments either way. The yield curve retains a modest inversion, implying slower growth expectations, but nothing out of line with a pause stance.
We are carefully monitoring short-dated options activity, particularly in interest rate derivatives, as positioning appears cautious but no longer aggressively skewed to cuts. Implied volatilities remain close to their 3-month averages, implying that traders heavily discount any possibility of immediate surprise. That said, optionality remains valuable given the compression in realised volatility paired with latent risks from offshore economies.
Forward guidance from the Reserve Bank continues to sway local curve pricing more than offshore developments for now. Traders should focus on incoming data releases tied to inflation expectations, cost pressures, and labour market endurance. The risk now is less about surprise easing, and more about rates staying higher for longer than previously assumed.
The next set of CPI print and wage growth figures will be especially important. If these arrive stronger than consensus, we expect implied yields on the short end to rise modestly, triggering reassessments in near-term positioning. This should also have a direct impact on the shape of the swaps curve, particularly boosted rates in the 1-2 year zone.
In this environment, we favour keeping exposure light across the curve unless there’s strong directional conviction. Cross-currency basis differentials are worth watching too, as global yield compression could affect funding costs asymmetrically.
Short gamma strategies around RBNZ meeting dates should be approached cautiously. Recent pricing shows that markets are not complacent, but nor are they expecting large swings. If we see some deviation in tone by the committee, those implied levels could quickly expand. Traders with directional leanings may consider spreads rather than outright positions — these tend to absorb surprises better while offering cleaner risk profiles.
Pay extra attention to forward-start OIS contracts. Pricing beyond the next two meetings has shown greater divergence from the overnight path, which opens potential basis opportunities for relative value plays. These should always be stress-tested against volatility from external macro catalysts, especially from the PBOC or Fed.
All else equal, the current signals encourage strategic patience rather than tactical boldness. The key is to stay close to market-implied probability shifts and align with updated official tone, using derivatives as tools to hedge or express time-bound dislocations — not as statements of long-term forecast conviction.
