Anticipation surrounds the Reserve Bank of New Zealand (RBNZ) as Anna Breman prepares to assume her role as governor in early December. Current market forecasts suggest the RBNZ will likely complete its monetary easing cycle before her tenure begins. Swaps data compiled by Bloomberg indicates increasing expectations for a substantial 50 basis-point rate reduction at the RBNZ’s upcoming meeting next month.
Further analysis of the data reveals that a subsequent rate cut in November would push the total reduction just beyond the 70 basis points already factored into market pricing between now and the February meeting. Bond investors have benefited from a rally this year, spurred by the RBNZ’s proactive lowering of borrowing costs, aimed at stimulating growth within a subdued economy.
This aggressive easing has significantly impacted yields on policy-sensitive two-year notes, which have decreased by almost 90 basis points this year. This performance surpasses both US Treasuries and Australian bonds. Consequently, New Zealand’s yield curve has become the steepest among major developed markets.
According to Imre Speizer, a strategist at Westpac, the bulk of the easing may conclude before Breman’s arrival. Westpac anticipates a 50 basis-point interest rate cut at the bank’s next policy setting on October 8. Speizer also noted that a prolonged flattening cycle is anticipated in 2026 and may commence following the November meeting.
