New Zealand's central bank likely to pause early

The Reserve Bank (RBNZ) lifted its cash rate by 25bp to 3.0% overnight, as expected. Exports should remain a bright spot but domestic indicators have been softer than anticipated by the RBNZ and will probably continue to disappoint. The tightening cycle has only just begun and, although it is a close call, we still expect another 25bp hike at the next meeting in September. The RBNZ is then likely to stay on hold into 2011.