Five bank forecasts range from 3% to 3.75% as oil prices bite
New Zealand's economy grew 0.2% in the June quarter, comfortably beating the Reserve Bank's own flat forecast and lifting annual growth to 2.6% — a result all five major bank economics teams described as stronger than expected given the Middle East-driven oil price shock hitting the quarter. ANZ noted the economy showed "more resilience than feared," while BNZ called it "a very commendable performance given the oil shock presented a significant headwind."
The stronger starting point is colliding with a less comfortable inflation picture. BNZ now expects annual CPI to ease to 3.8% in the September quarter before punching back up to 4.2% by December, an upward revision on its prior forecast, and has reinserted a 25-basis-point October OCR hike into its call after removing it just weeks earlier.
Rising oil prices and a weaker NZD are doing the damage: Kiwibank's economics team put it bluntly, warning "now is not the time to be dousing it with water" on the recovery, even as they argued an October hike would be premature.
Bank forecasts diverge on how high the OCR will go
That disagreement over timing extends to where the OCR ultimately peaks, with five major banks now sitting on meaningfully different calls. ASB expects hikes at both the October and December reviews, taking the OCR to 3.25% by year-end. Westpac expects the Reserve Bank to pause in October before hiking in December, reaching 3%. ANZ backs an October move too, but argues the OCR will peak at 3.00%, calling market pricing nearer 4% "overdone." BNZ is the most hawkish of the group, forecasting 25-point increases at every meeting from October until the OCR reaches 3.75%.
ANZ argues that if the RBNZ's committee is "finely balanced," it will likely "favour the smoother path" and hike once markets are more than half-priced for one — and ANZ notes market pricing for an October move has already reached 68%, even though the Reserve Bank's own September Monetary Policy Statement had signalled a December hike as more likely.
Housing stays soft as borrowers weigh their options
For advisers, the housing market offers little near-term relief regardless of which bank's OCR call proves right. REINZ data showed prices fell in August, with ANZ, Westpac, and BNZ all flagging a softening market.
ANZ noted buyers "appear to be stepping back in the face of higher interest rates and election and broader uncertainty." Westpac observed that fixed mortgage rates between two and five years now sit above 5% but argued fixing for one of the longer terms "still appears attractive as it would insulate borrowers from a trend higher in the OCR over the next couple of years."
With the 7 November election adding a further layer of uncertainty to the outlook, borrowers weighing fixed terms have a genuinely wide range of professional forecasts to consider before deciding how long to lock in.
Read the full reports: Kiwibank First View, Westpac Weekly Economic Commentary, ASB Economic Weekly, ANZ Research, and BNZ Markets Outlook.
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