The Reserve Bank of New Zealand has raised interest rates twice in a row, and global central banks have entered a "data-dependent tightening" phase! "Higher for longer" has returned as the main theme in market pricing.

The Reserve Bank of New Zealand has raised the benchmark interest rate in consecutive monetary policy meetings, aiming to shift towards a more contractionary policy setup to guard against potential inflationary pressures. On Wednesday in Wellington, the Monetary Policy Committee lifted the official cash rate by 0.25 percentage points to 2.75%, in line with economists' widespread expectations. The Reserve Bank's new forecasts suggest that another 0.25 percentage point increase may occur before the end of the year, with the likelihood of pushing the rate toward a neutral level of around 3% continuing to rise. It is noteworthy that the latest average forecast for the official cash rate in the fourth quarter by the Reserve Bank is unexpectedly slightly revised down from 2.84% to 2.81%. Additionally, as core inflation remains stable at 2.7%, this decision can be seen as a hawkish rate hike with relatively cautious forward guidance, leading to a drop in the New Zealand dollar to 58.59 cents and a 6 basis point decline in the two-year government bond yield to 3.59%. This highlights the shift in the Reserve Bank's policy focus from stimulating the economy to preventing the entrenchment of the 4.1% overall inflation but does not indicate a swift series of rate hikes to combat inflation. As of September 2, the backdrop of worsening geopolitical tensions in the Middle East has intensified energy shocks, accelerated fiscal deficits in Western countries, triggered a term premium expansion from government and tech corporate bond issuances, and led global central banks to reinforce constraints against inflation, jointly triggering a new wave of selling in global long-term government bonds with maturities of ten years and beyond. Statistics from LSEG show that the yield on the 10-year U.S. Treasury bond rose to 4.798%, while the 30-year Treasury yield climbed to 5.27%; Japan's 10-year bond yield broke through 3%, reaching its highest level since 1996; and Germany's yield on the 10-year bond rose to 3.35%, with the UK's 10-year yield hitting 5.25%. Brent crude oil has returned above $92 per barrel, and the U.S.-Iran conflict has further strengthened the transmission chain of energy inflationrate hike expectationsterm premiums rising. The duration of the U.S. 30-year Treasury bond yield remaining above 5% has reached its highest level since 2006. The U.S.-Iran conflict has escalated from the weekend's bombing of La Laque Island by U.S. forces and Iranian attacks on U.S. military bases in Jordan into a second round of direct clashes within three days. On Tuesday, U.S. forces conducted intensive strikes against Iran's Islamic Revolutionary Guard Corps' air defense, radar, naval operations, mine-laying, and communication facilities. In parallel, Iranian media reported explosions at airports in Ahvaz, Jiroft, Chabahar, Abbas Port, Assaluyeh Energy Hub, and near Qeshm Island. Iran subsequently launched ballistic missile and drone strikes against U.S. facilities in Jordan and claimed to target U.S. forces in Bahrain. The Strait of Hormuz, critical for global energy transport, has become a real combat center. Two supertankers, each carrying approximately 2 million barrels of Saudi crude oil, were struck by unidentified flying objects near Oman within minutes of each other. From Jackson Hole to Wellington, central banks' hawkish tones have pierced global long bonds. The Reserve Bank of New Zealand has raised its cash rate by another 25 basis points, bringing the official cash rate to 2.75%, aiming to remove monetary stimulus and curb the overall inflation, which has risen to 4.1%; however, its average rate forecast for the fourth quarter has been adjusted down from 2.84% to 2.81%, without committing to a rate hike in October. Despite the third-quarter inflation forecast being raised to 3.9%, the timeline for returning to the midpoint of the 2% target has been postponed to early 2028. Still, with core inflation remaining stable at 2.7% and long-term expectations well anchored, it seems more likely that the Reserve Bank will discuss the next rate hike in December after observing the sustainability of economic recovery, rather than mechanically hiking rates in both October and December; this policy direction, along with the resumption of rate hikes in Australia and the commitment by Waller to monitor U.S. inflation risks, indicates that global central banks are rapidly shifting from a narrative of unilateral rate cuts to a data-dependent, cautious monetary tightening phase, characterized by maintaining higher rates for a longer duration (the so-called higher-for-longer). Waller emphasized in Jackson Hole that the Federal Reserve must ensure inflation returns definitively to the 2% target, and if confidence cannot be established, policymakers still have work to do; simultaneously, he weakened forward guidance, urging markets to price based on economic data rather than Fed commitments. Waller noted that the Fed's current top priority should be prices, asserting that if core inflation does not decline sufficiently, policymakers still have work to do. His latest hawkish remarks increased the probability of a September hike from 35.4% to 55.7%, and then further to around 70%. Both Socit Gnrale and Barclays shifted to a hawkish stance following Waller's speech, expecting rate increases of 25 basis points in both September and December, which is a significant shift from their previous forecasts of no changes throughout 2026. Barclays has changed its stance from no change to the benchmark rate for the year to anticipating two rate hikes, expecting the federal funds rate range to rise to 4.00%-4.25% by year-end. However, Wall Street has not arrived at a consensus on a rate hike prediction, as Goldman Sachs economists believe that recent employment and inflation data are insufficient to support a September action, predicting no changes throughout 2026 and the first rate cut postponed until June 2027. Waller's remarks combined with the impact of rising oil prices in the Middle East have driven the pricing probability for a 25 basis point rate hike in September in the interest rate futures market to about 68.2%. In the backdrop of escalating geopolitical tensions, rising long-term government bond yields, and global central bank hawkishness, spot gold fell to $4,304.01 per ounce on Wednesday, its lowest level in over three weeks, breaching the 200-day moving average; silver, platinum, and palladium fell by approximately 1%, 1%, and 1.4%, respectively. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite Index fell by 0.79%, 0.71%, and 1.03%, respectively, while the Philadelphia Semiconductor Index dropped by 2.1%, displaying a typical combination of rising oil prices leading to falling bonds + precious metals and growth stocks facing pressure. The Reserve Bank of New Zealand has raised interest rates twice to curb inflation, but consecutive rate hikes do not mean abruptly hitting the brakes. This aligns with market expectations. The Reserve Bank's new forecasts indicate that another 0.25 percentage point increase may occur before the end of the year. In its post-meeting statement, the Reserve Bank said: The Committee believes that gradually removing monetary stimulus is appropriate, both to help inflation return to the target midpoint of 2% and to support economic growth and employment. Future policy decisions will depend on the Committee's judgment regarding the balance of medium-term inflation risks. The Reserve Bank began its monetary policy tightening cycle in July, signaling a desire to gradually remove stimulus policies, as the overall inflation rate had exceeded the target range of 1%-3%. Although economic recovery may strengthen price pressures in the second half of the year, policymakers appeared less urgent about pushing the official cash rate back to the neutral level of 3% or higher on that day. Kelly Eckhold, Chief New Zealand Economist at Westpac Banking Corporation in Auckland, stated: The Reserve Bank is still determined to further raise the official cash rate, but for now, this seems more like a matter to discuss in December rather than one that needs to be addressed in the separate October and December meetings. Before committing to significantly increasing the number of rate hikes, the Monetary Policy Committee wants to see more evidence regarding the sustainability of the economic recovery. Following the announcement, the New Zealand dollar fell nearly 0.5 cents; at 3:02 PM in Wellington, one New Zealand dollar exchanged for 58.59 cents. The yield on the two-year government bond, sensitive to policy, fell by 6 basis points to 3.59%. David Krowe, Senior Rates Strategist at ANZ Group Holdings Limited in Wellington, noted that it is currently challenging to determine whether short-end rates will fluctuate further and whether the New Zealand dollar will continue to decline. He commented: So far, the market performance aligns perfectly with the unexpected dovish direction and extent of today's announcement. The previous market pricing was that a total of 33 basis points would be raised by year-end, including today's rate hike; however, given the lower implied rate path suggested by the Reserve Bank's forecast and the absence of a commitment for an October hike, the market's current response is appropriate. The Reserve Bank stated in the Minutes of the Meeting that the six-member committee reached this decision unanimously. The Reserve Bank's forward guidance indicates that the average level of the official cash rate in the fourth quarter will rise to 2.81%, lower than the 2.84% forecast in May's announcement. However, the Bank expects the official cash rate to reach an average level of 3.07% by mid-2027. The Committee stated: Under the conditions established by the baseline economic outlook, members judged that the official cash rate may need to be adjusted further upward. However, the future path of the official cash rate is not predetermined. Before the announcement, investors had placed the probability of a 0.25 percentage point hike in the next meeting in October at around 65%, while a rate increase before December had been fully priced in by the market. With the center-right government preparing to campaign on stronger economic governance ahead of the November election, rising borrowing costs would be a situation they would be very reluctant to see. Prime Minister Christopher Luxon is in a difficult position in public opinion polls, while the main opposition party, the Labour Party, has pledged that if it wins the election, it will empower the Reserve Bank of New Zealand with a dual mandate to maintain price stability and achieve maximum employment. Compared to Australias monetary policy cycle across the Tasman Sea, New Zealand's interest rate adjustments are more continuous. The Reserve Bank of Australia cut rates by a total of 75 basis points last year but has since reversed all those cuts in the first three meetings of this year due to rising inflation pressures. Given that inflation continues to show persistence, Australia currently faces calls for further rate hikes. In the United States, Federal Reserve Chair Kevin Waller delivered a significant speech last week in Jackson Hole, Wyoming, warning that inflation has not shown substantial moderation and stating that if price pressures do not ease quickly, policymakers need to take action. This rhetoric has rekindled the market's expectations around rate hikes, prompting investors to increase bets that the Fed could possibly raise rates as early as this month. In New Zealand, the surge in fuel and other commodity prices triggered by the Middle Eastern conflict has transmitted shockwaves throughout the global economy, pushing the inflation rate in the second quarter to accelerate to 4.1%. However, the core inflation rate measured by the Reserve Bank remained at 2.7%, and inflation expectations are still well anchored. On the same day, the Reserve Bank forecasted that the inflation rate in the third quarter would slow to 3.9%, but this is above the prior forecast of 3.3%. It now expects inflation to return to the midpoint of the 2% target range by early 2028, rather than the previous forecast of the third quarter of 2027. The Committee stated: Inflation and forward-looking indicators of economic slack are consistent with achieving medium-term targets. Long-term inflation expectations remain close to 2%, and most near-term inflation expectation indicators have seen declines since May.