Economists say the Reserve Bank's (RBNZ) new forecasts show it may have to hike the official cash rate again in the future.
After concluding its August meeting on Wednesday, the central bank said it was keeping the baseline interest rate (OCR) at 5.5 percent - having lifted it by 525 basis points since the end of 2021.
In doing so, the RBNZ warned it would need to keep rates "restrictive" for the foreseeable future.
Speaking to AM on Thursday, Milford Asset Management investment analyst Katlyn Parker said the RBNZ was still very much in a "watch, worry, wait" scenario.
"We need to remember that what we published yesterday, that's what they think is the most probable that's going to happen - it doesn't mean that it's the only thing that can happen and they're very aware that there's multiple paths that could play out."
Parker pointed to comments made by RBNZ Governor Adrian Orr on Wednesday, during which he made clear its forecasts could change at any time.
In Wednesday's monetary policy statement (MPS), the RBNZ did not rule out further tightening of monetary policy. The central bank noted expectations for "the level of the OCR next year have increased, with fewer cuts priced through 2024 than prior to the May statement".
ANZ's economists said although Orr was "at pains to downplay the small lift in the OCR track as any kind of signal as to the likelihood of future moves, it was a small but clear step in the direction of further hikes".
While the RBNZ was still forecasting OCR cuts for the second half of 2024, the economic outlook was "getting murkier, if anything, with risks on both the upside and downside threatening to crystallise", ANZ said in a note.
Even before Wednesday's MPS, many economists thought there was a decent chance of another hike before the year's end.
"Indeed, our base case is that domestic inflation pressures will not abate as rapidly as the RBNZ is assuming, due to relative resilience in the labour market in particular," ANZ said.
"We continue to forecast a 25bp hike in November."
But ASB was forecasting no further hike, with the bank forecasting inflation - running at 6 percent in the second quarter - to fall below 3 percent and back within the RBNZ's target range late next year. That forecast was in line with the central bank's own predictions.
"Capacity pressures are quickly easing in the labour market with employment forecast to move towards (and then below) its maximum sustainable level. The domestically driven inflationary pressures should eventually subside," ASB said.
"Our core view is that the OCR will remain on hold at 5.5 percent, with prospective OCR cuts not until August 2024 (previously May within ASB's forecasts). There is also the risk that if the economy proves to be more resilient than expected and inflationary pressures fail to sufficiently cool, the OCR peak this cycle could be higher than 5.50 percent.
"A soft landing for the NZ economy still looks achievable, but the RBNZ has kept a laser-like focus on the inflation outlook and is wary to declare victory too soon. Risks to the inflation outlook within forecasts and comments appear largely balanced."
