Banks split on whether the data justifies further rate hikes
New Zealand businesses are near their most optimistic since 2014, but weak demand is still holding back activity and prices. That has left bank economists divided over whether the Reserve Bank (RBNZ) needs to keep lifting the official cash rate (OCR).
The New Zealand Institute of Economic Research's (NZIER) Quarterly Survey of Business Opinion (QSBO) for the September quarter showed a net 40% of firms expecting better economic conditions, up from 14% in June. Yet a net 1% reported lower trading activity, and a net 5% had cut staff.
Optimism outruns demand
ASB's analysis found the share of firms naming lack of sales as their biggest constraint rose from 57% to 64%. ASB said confidence may be misplaced while activity keeps falling short of expectations.
Retailers were the most upbeat sector, with a net 57% expecting better conditions, even though their sales and orders fell. Building firms also turned positive as new orders picked up.
Kiwibank's economists blamed a subdued housing market, a slack jobs market and stretched household budgets for weak demand. They said improving investment and hiring intentions, which Westpac's first take on the survey put at a net 23% for hiring, signal a stronger December quarter.
Weak demand caps prices
Cost and pricing pressures eased. The share of firms reporting higher costs fell from a net 54% to 47%, and fewer firms raised prices. NZIER said soft demand was limiting how much firms could pass on higher costs, even as renewed conflict in the Middle East pushed oil prices up.
ASB said there was "no smoking gun on inflation".
Split over the OCR
ASB and Bank of New Zealand (BNZ) both expect a 25-basis-point hike at the RBNZ's 28 October review. ASB sees the OCR peaking at 3.25% by the end of 2026, while BNZ expects it to reach 3.25% in December and 3.75% by March 2027.
Westpac senior economist Michael Gordon said the survey gave the RBNZ no compelling reason to abandon the pause it signalled in September, adding that "there is still a wide gap between hopes and reality".
Kiwibank was blunter, saying the survey was "not a licence to increase interest rates" and warning that hikes could stall a fragile recovery.
NZIER warned that rising mortgage rates will add to the pressure on household budgets.
"We expect higher interest rates to restrain household discretionary spending over the coming year as households' mortgages come up for repricing and their repayments increase," the institute said.
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