RBNZ's Hawkish Reaction Function Reset

Goldman Sachs analyzes the RBNZ's May 2026 hawkish pivot, which signals a pre-emptive tightening cycle despite weak growth indicators. The bank has pulled forward its hike forecast to July/September 2026 but believes market long-term pricing is excessive.

Key Takeaways

• 1.The RBNZ underwent a surprise hawkish pivot in May, resetting its reaction function to signal near-term interest rate hikes.
• 2.Goldman Sachs has pulled forward its forecast for the start of the RBNZ tightening cycle to July/September 2026.
• 3.The hawkish shift appears influenced by research on 'supply hub shocks', justifying pre-emptive tightening despite weak spare capacity.

Table of Contents

• The RBNZ's May meeting: A surprise hawkish reaction function reset
• Hawkish reset likely anchored in recent research on shocks to supply ‘hubs’
• GS macro forecast updates: Earlier hikes, slower growth, higher inflation
• RBNZ's hawkish pivot looks durable near term, despite sources of potential volatility.
• Longer term, financial markets look over-priced for rate hikes.
• The Australia and NZ Economics Team
• Disclosure Appendix