How have interest rate expectations changed after this week's events?

How have interest rate expectations changed after this week's events?

The desk believes that interest rate expectations remain largely unchanged despite geopolitical tensions, with central banks maintaining a hawkish stance. Per the full note [source], the RBNZ is projected to hike rates by 83 bps by year-end, while the ECB shows a 77% probability of a hike at its next meeting. This aligns with our view that the Fed may soon pivot away from its easing bias, especially if geopolitical conditions stabilize. However, the market's current positioning appears overly optimistic regarding rate hikes from the BoJ and SNB, which may not materialize as expected.

RBNZ set to hold at 2.25% but majority now see hikes coming by end-September

RBNZ preview: A closer call than markets expect

The desk anticipates a potential interest rate hike at the Reserve Bank of New Zealand's upcoming meeting on May 27, although it acknowledges that the RBNZ's tendency towards dovishness may lead to a 'hawkish hold'. Per the full note from ing-think, there is an underappreciated risk of tightening, with expectations suggesting the first of two hikes could occur as early as July. With external factors likely to drive NZD movements, market participants should remain vigilant. Supporting arguments for a hike include evolving inflation data suggesting underlying pressures and a global economic recovery, particularly as the RBNZ has previously suggested readiness to act if necessary. As such, new projections could indicate a tightening cycle starting in Q3, reflecting a shift in the central bank's stance. While the desk leans towards anticipating these hikes, it implicitly dismisses the counter viewpoint that favors a prolonged period of policy accommodation—arguing instead that inflationary pressures are likely to prompt action sooner rather than later.

NZD jumps - RBNZ holds OCR at 2.25% by casting vote as committee splits 3-3 on rate hike