Capital Economics: The Reserve Bank of New Zealand has the conditions to begin raising the official overnight cash rate.

Capital Economics has indicated that the improvement in New Zealand's GDP growth in the first quarter may provide conditions for the country's central bank to start a tightening cycle in the near future. However, more timely output data shows that the situation weakened in the second quarter. Senior economist for the Asia-Pacific region Abhijit Surya pointed out that BusinessNZ's composite Purchasing Managers' Index fell again in May, indicating a significant slowdown in growth in the second quarter. Meanwhile, the Reserve Bank of New Zealand's Nowcast model shows that actual GDP will decrease by 0.2% in the second quarter. "The latest data may not prevent the central bank from starting the process of policy normalization," Capital Economics said. "However, in the absence of a compelling reason for a full tightening, interest rates are likely to return to neutral levels at best."