ep 375 | Deals and dots mean changes for central banks
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On Point with Craig's Investment Partners. The information provided here is general in nature and it's not financial advice. It doesn't take into account your situation, objectives, goals or risk tolerance. All investments are subject to risks and none are guaranteed. Before you make any investment decisions, we recommend you contact an investment advisor. For more information about our services or to view the Craig's Investment Partners Financial Advice Provider Disclosure Statement, please visit our website, which is craigsip.com. Welcome to On Point, I'm Mark Lister, Investment Director at Craig's Investment Partners and I'll be talking about a range of topics including economics, portfolio strategy, investor education and anything else that's happening out there in financial markets.
Last weekend's news of a potential deal between Iran and the US could not have come soon enough. The conflict had gone on for 15 weeks, much longer than we all initially expected and certainly hoped. This had really raised the stakes for the inflation outlook and it had threatened to force the hand of central banks and make 2026 a really challenging year. Now, it still looks a little bit shaky, but there is definitely hope that we might be able to avoid some of the more dire scenarios. And that might also mean that our Reserve Bank here in New Zealand won't have to do quite as much as many feared to rein inflation in. Markets have reacted positively to the news from last weekend. We've seen oil fall almost 30% from last month's peak.
It was $107, $108 at one point last month. Now it's down below $80. Global share markets have pushed higher and odds for hikes in the official cash rate, the OCR, have fallen back a little bit. Earlier this month, financial markets saw about a 90% chance of the first OCR hike this cycle coming in early July, that's next month, while a total of three 25 basis point moves were expected before the end of this year. That would have seen the OCR finish this year at 3%. Today, it is at 2.25%. Now, a move up is still expected in July, but markets are much less confident. Odds pulled back to below 70% at one point last week, and just two 25 basis point increases this year might now be more likely. We've seen a similar reaction across wholesale interest rate markets over the last 10 days or so,
and this has a bearing on mortgage rates too. New Zealand's five-year swap rate, which is a wholesale market interest rate, hit over 4.2% back in March when the conflict first broke out. That was the highest we'd seen since the middle of 2024, and it was a big move up from 3.5% in late February before the conflict started. That all came on the back of higher oil prices, expectations of rising inflation, and similar increases in wholesale interest rates elsewhere. Recently it's been as low as 3.6%, which is almost back to pre-conflict levels. Now it's not just these developments across financial markets that will have given the Reserve Bank food for thought. We've also seen some inflation indicators, like Stats NZ's selected prices release for May, come in softer than expected.
As a result, you've seen some of the banks adjust their forecasts. Westpac and ANZ have pulled back their inflation estimates for the June and September quarters to just above 4%. They were sort of in the mid-fours before. Meanwhile, ASB has reduced its estimate for the December quarter to 3.6%. Those are all lower than what the Reserve Bank had in its May monetary policy statement, its MPS. Now, we only see the Reserve Bank forecasts periodically when it releases an MPS, which is every three months or so, and the next one of those isn't due until early September. But you can bet that the Reserve Bank too has reduced its inflation estimates in its internal models. This is all good news for commuters, for households and for the economy in general.
We're seeing a slight reprieve at the pump already, which will hopefully limit cost pressures across other goods and services. Inflation expectations should soften on the back of those moves, giving businesses the breathing space to get back to making decisions.
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